Having a small business means you are often too busy to think about your next tax return. However, it is imperative that you work all year round to be prepared when tax time comes. Otherwise, you will find yourself scrambling to figure out all of your expenses and may end up paying more taxes than you should. The IRS does not publish an exhaustive list of allowable tax deductions for each industry but instead states a general rule of thumb deeming whatever is 'ordinary and necessary' for the operation of your business.
Expenses You Can Claim If You’re Self-Employed
While there is not an actual all-inclusive list, there are some tax deductions that most small businesses often use. These include but are not limited to:
- Office supplies: This is everything you use in your office from the copy paper to the garbage bags to the post-it notes.
- Home office: If you work from home, you can claim the portion of your home that is used exclusively on a regular basis as a home office.
- Under the 2018 tax reform, small businesses can reduce their income by 20%. This is called the Qualified Business Income deduction.
- Dues, subscriptions and fees: This includes dues for membership in a professional organization, fees to banks or credit cards and subscriptions to journals.
- Training or education: Classes or webinars that train for new skills or improve on existing skills that are directly or indirectly related to your business can be claimed. An indirect skill might be taking classes to learn more about bookkeeping for a business selling water heaters.
- Equipment: Items such as a computer, printer or copier can either be depreciated over time or taken as a one time expense. Maintenance, repair or upgrades on office equipment can also be counted as expenses.
- Promotions, advertising and marketing: Any brochures, business cards, online ad campaigns, cost to enter fairs or trade shows, giveaways and more count as marketing materials.
- Employees, subcontractors and benefits: Any time you hire someone to do work for your business, the amount you pay that person is deductible. In addition, taxes you pay and benefits you provide for employees are deductible.
- Software: Domain fees, web hosting, monthly software fees you pay for services such as Adobe Creative Cloud, Microsoft, Quickbooks and more are listed as expenses.
- Rent, utilities and repairs paid for a commercial office are tax deductions.
- Although you will have to pay self-employment tax, you are then allowed to deduct half of that tax from your income.
- Mileage or actual expenses for a car you use in your business are also considered expenses. You do have to choose between mileage or the actual expenses.
Self-Employed Tax Preparation & Tax Return Review
This is not a comprehensive list but rather the more common tax deductions. If you need help with your small business tax return, contact Chandler & Knowles CPAs. We can also assist with tax preparing year round rather than waiting until tax season. Contact us today.