While the 2017 tax season has now passed, it is never too early to start planning for your 2018 taxes. In particular, as a small business owner, you will want to make sure that you take advantage of all of the deductions available to small business owners for business expenses. While the IRS offers a fairly in-depth guide on deducting business expenses, here are a few key deductions many small business owners might miss.
The Home Office Deduction
If you are like many small business owners, then it is likely that you run your business out of your home office. If this is the case, then you may be able to claim a home office deduction on your taxes as long as there is a part of your home that you use exclusively for conducting business. This will allow you to deduct a portion of your indirect business expenses such as utilities, rent, and internet charges based on the percentage of your home used for business. The IRS has a detailed guide on home office deductions including a worksheet that can help you to determine your deduction amount.
In addition to taking a deduction for the indirect expenses your small business incurs, you can also take a deduction for any business/office supplies you may have bought throughout the year. This is why it is important to keep any business related receipts so that you can keep track of what you spent on your business. You can also deduct the cost of any large purchases you made for your business throughout the year such as office furniture, computers, copiers, fax machines, or any other equipment purchased for your business. When you make deductions for large business purchases, you will have the option to either deduct 100 percent of the cost in the year of purchase, or you can choose to deduct a portion of the expense over several years (this is known as depreciation).
Travel Costs and Business Lunches
It is also important for small business owners to take a deduction for any money they may have spent on business-related travel and meal expenses throughout the year. Whether you travel by plane, train, bus, or car, any travel expenses you pay in the line of work are 100 percent deductible. Additionally, if you travel far enough that you have to stay in a hotel, the entire cost of your hotel stay is tax deductible as well. You will also be able to deduct 50 percent of the cost of any meals you have while you are on the road. Business lunches you have with customers, employees, or business partners throughout the year are also deductible up to 50%; so don't be afraid to try to impress business partners with a nice meal.
If you use your personal phone a great deal to conduct business calls, you will likely also be able to deduct a portion of your phone bill on your taxes. The key is to keep track of the calls you have made throughout the year. Many phone bills come with an itemized list of the calls you made, and how long each call was. This will allow you to determine how many minutes you spent on business calls, which will allow you to determine what percentage of your phone calls were business related. Therefore, if you determine that 50% of your time spent on the phone in the previous year was business related, you would then be able to deduct 50% of your monthly phone bill.
Many small business owners are surprised to discover just how many deductions are available to them. It is then important that you take some time before next tax season to determine what deductions you may be eligible for. However, it is vital that you consult either the IRS's guide to deducting business expenses, or a skilled accountant, in order to ensure that you follow procedure when taking these deductions.
Contact us to learn more about small business tax deductions as well as to find out how we can help you to begin planning for next tax season.
For more information on the 2018 tax reform, check out our simplified guide below.