Small Business Saturday is November 28th! If you’re unfamiliar with SBS, it’s an appreciation day to highlight small business success and encourage customers to shop local. In honor of this day, we’ve put together a list of ten tax deductions that small businesses should consider for tax time.
1. Auto expenses:
You can deduct many automotive expenses. When your car is being used for business purposes you can deduct mileage, parking and tolls. Usually, the easiest route is to take the standard deduction instead of tracking the actual mileage used for each trip.
2. Association dues:
Joining associations is critical for networking in most professional fields. You can claim association dues except for the portion which covers political contribution or lobbying. Associations are required to disclose that amount or percentage.
3. Professional publications & software:
Publications and software are not common expenses. Software should be amortized over 60 months unless it is subscription based and you pay for it at least every year. Publications have the same rules. Many professional publications are paid for on a multiyear basis.
4. Advertising & promotion:
Advertising can be a very large budget item. Take note that advertising often covers multiple years. In that case, you will spread the cost over the years that the advertising takes place. If your business spends money on promotions, website design and printed marketing materials, then these can be deducted. Goodwill advertising is another area that groups sometimes forget to include. A tax court actually allowed a gas station owner to deduct the cost of free beer provided to customers as a goodwill advertising expense because it improved business.
5. Home office:
A home office is a deduction many small business owners take, though they don’t always know the rules. We encourage checking with a tax professional to ensure your home office qualifies. Something key in evaluating if your home office qualifies is whether the space is used on a continuing basis, exclusively for business purposes.
There are many services that are used for business purposes. If you have dedicated services for your business, those may be deductible. If they are used for personal reasons as well, you can only deduct the portion that is used for the business.
7. Education & training:
If you are taking any classes that are directly related to your current business, then you can deduct those costs. This also includes conferences and anything that is seen as continuing education.
8. Loans & bad debts:
Interest on business loans is fully deductible. You can also declare bad debt as deductible. In order to do so, the income has to have already been declared. As a business owner, if you bill a client in December 2009 and declare that income on the 2009 return, yet by the end of 2010 realize that you will not receive payment, you can take a bad debt deduction for the income previously declared. If that income was not declared, you will be unable to take the bad debt deduction.
9. Entertainment & travel expenses:
Travel and entertainment are critical parts of networking and building your business. The rules for these two deductions are something you should pay close attention to. Not everything is 100% deductible, but you can often deduct a large percentage. Whether your work is sending you to New York or New Orleans, make sure you keep accurate track of your expenses.
Your insurance premiums for the business for one year or less are deductible on the current year. Excess prepaid premiums are deductible in subsequent years.