As a small business owner, you’re always looking for ways to grow your revenue and improve your bottom line.
Even though it’s important to increase your revenue, it’s equally critical that you find ways to keep more of the money you’re bringing in. This is why learning about tax deductions is essential.
Keep reading to learn about the most common tax breaks that small businesses often overlook so that you can keep more of the money it earns.
What You Need To Know
There’s plenty of confusion about small business taxes and what’s deductible. Simply put, a tax break is any kind of tax deduction or credit that will help a small business save money on the tax bill. There are many expenses associated with running a small business, and it can be challenging to determine which can lead to a tax break.
The IRS has stated the following conditions for a small business tax break: “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.”
The key phrase regarding tax breaks is necessary because it can be tempting to incur expenses as a small business owner just to try to get a tax break.
“The best thing is to find a qualified expert to review your business to find out what is and isn’t a legitimate expense for your specific business because what’s deductible for one industry might not be for others,” said Eric J. Nisall, a tax accountant who works with small business owners.
Overlooked Tax Breaks
1. Home Office
Nisall believes that the home office deduction is the most overlooked tax break because people either don’t know how it works or are afraid of being audited. The last few years have changed how some small businesses operate. If you find yourself working out of your home, you can deduct the portion of your home and the Internet used for your business.
This tax break also extends to setting up your home office and making modifications. Repairs, upgrades and alterations to your home office setup can be tax deductions. This also applies to painting, purchasing a new cabinet or even the cleaning service you use.
Many small business owners don’t realize that any education related to how the business brings in money is deductible. The most overlooked aspect of education for small business owners is any money spent on business or personal development.
For example, if you take an online course that will help you with marketing or anything that brings in more money for the business, you can get a tax break. This is beneficial because, as a small business owner, you often wear multiple hats and find yourself learning new skills to keep up with the industry.
Professionals often must keep up with specific development courses for their license or accreditation reasons. Any of these relevant programs or courses are tax deductible since you need them to operate your small business.
This brings us to the next overlooked business expense.
3. Business Travel
Business travel costs are deductible, so if you attend industry events or travel for business conferences, you can get a tax break for your small business. Possible tax deductions could include plane/transportation tickets, hotel, conference costs, baggage fees, paying for Wi-Fi, and business-related lunches.
Many small business owners will overlook this tax break because the lines get blurred between personal and business trips. If you’re mixing business and personal, you want to ensure that you only write off the business-related expenses of your travel.
4. Vehicle Use/Local Travel
If you use your vehicle for local business travel, you can write off certain expenses associated with this. If you visit a client and have to pay for parking, you can deduct this fee along with any other expenses incurred, like crossing a toll bridge and the mileage.
It’s important that you track which portion of your vehicle you use for your small business to take advantage of the tax breaks. Many small business owners will overlook this tax break because they just get used to traveling for business, and they forget to track the expenses that come with it.
5. Bank & Merchant Account Fees
A small business expense that many don’t consider is the banking fees and merchant expenses. When discussing small business expenses, we often tend to forget about the actual payment collection methods.
Nisall stated that many small business owners forget to track the Paypal fees, payment processing costs and even credit card costs for some reason.
You can deduct anything related to collecting or sending money for your small business. This also includes bank maintenance fees, late payment fees, credit card annual fees, and even loan interest. As a small business owner, it’s essential that you keep track of the money it costs you to collect money.
This is why it also helps to have separate business accounts from your personal ones so that it’s easy to track your finances. You want to ensure that your personal and business accounts are separate because you don’t want to get audited.
While we want you to be aware of tax breaks that are often overlooked, we also don’t want you to steer off too far in the other direction. Eric warned small business owners about following tax advice from unverified sources like “social media gurus,” who could be incorrect about their technical tax advice.
“People follow unqualified ‘experts’ and try to pay for their entire lives through their business,” according to Nisall. You want to ensure you obtain your tax advice from the appropriate source.
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