Optimizing Your Small Business Deductions

Tax season is officially behind us. Over the last quarter, the desire to sit back, relax and wait until next year’s scramble has certainly been appealing. But the hands-off approach is the most sure-fire way to miss out on money that is essentially up for grabs. By you or your bookkeeper staying on top of deductible expenses throughout the year, tax time can not only become a breeze, but you could also find your small business reaping much more of a benefit. Knowing what and how to maximize your deductions is vital for your business’s prosperity. Let’s look at the obvious and not so obvious deductions and get you thinking about what to discuss with your tax professional.


1. “Bad Debt” Deductions - Does your business have unpaid invoices going into the new year? Have you put forth the effort to obtain this money? Is it possible that the debt is paid before year's end? You could potentially deduct these from your overall reported gross income.


2. Section 179 Deductions - Assuming you did not fall asleep after reading the title, Section 179 applies to those big picture items purchased for business use - think vehicle, computers, software. The following map will help you decide if your business might have such deductions to discuss with your CPA:



3. Employee Associated Costs - If your business has employees, there are undoubtedly deductions that need to be taken advantage of. Items including but not limited to the following could be tax deductible:

  • IRA Contributions

  • Salaries/Wages

  • Benefits

4. Charitable Contributions - This seems like a no-brainer, however, charitable contribution deductions may be more of a labyrinth than you may realize. For example, with the increase of the standard deduction from the new Tax Cuts and Jobs Act (TCJA), you may not be itemizing this year. Here is a handy-dandy infographic to get you started on figuring out whether or not your donation is deductible:



5. Medical Care and Insurance Premiums - Again, if you are able to itemize, you may be able to deduct not just your own but also your family's medical expenses. Of course, there are multiple boxes to be checked prior to qualifying for this particular write off. For assistance in this matter, the IRS has formulated a helpful interactive quiz/questionnaire to determine if a specific medical expense is in fact tax deductible.


6. Meals & Entertainment - Ground Control to Major Tom, we’ve got ch-ch-ch-ch-changes! With the TCJA, one of the highlighted changes is in reference to entertainment. Previously, "Meals & Entertainment" were commonly lumped together. Thanks to the updates in the tax code, you'll need to split those up going forward. The act repeals the deduction of the cost of entertainment or entertainment related meals. However, business meals are still deductible as they have been in previous years. We’ve created this helpful table overviewing the changes for your reference. It looks like you’ll be paying for those Bowie cover band tickets out of pocket this year!



7. Business Related Expenses (Insurance, professional fees, licenses) - Outside of costs of goods sold, your other business expenses can also be deductible. The list of items to bring to your tax professional fall into two categories:

  • Ordinary - those expenses that are common in your field

  • Necessary - those expenses that are not necessary for day-to-day operations, but will improve your business as a whole

Lastly, for any items that function both as business and personal, you can deduct the amount used for business.


8. Vehicle and Transportation - According to the US Department of Transportation, the average American spends almost one full hour behind the wheel each day. If that really burns your biscuits, perhaps thinking of how to gain more on your tax return from transportation expenses might make that windshield time a bit more palatable. Now whether you take a car, truck, cab, or train, some portion of your monies spent is deductible. Fuel, repairs, tolls, fares, fees are all areas to review.


9. Travel - Planes, trains, and rented automobiles! Work-related travel outside of your tax home allows for many different deductions. Including but not limited to the following:

  • Shipping

  • Meals

  • Hotels

  • Airfare, cab fare, etc.

  • Laundry

  • Supply rentals

  • Communication fees

  • Service gratuities

For more detail and examples, visit https://www.irs.gov/taxtopics/tc511.


10. Interest - If you took out a loan to start your business, the interest on this loan can be tax deductible, but specifics will depend on a number of factors. Prior to meeting your CPA, it's good practice to keep track of how you are using your loan. Are you using 100% for your business? Did a portion of the loan go to other, non-business related areas? If so, you must allocate your interest in accordance with how the loan is being used. Yes, this is starting to sound hairy, but what better reason to discuss with your tax professional!


Ultimately, the message here is a simple one - track your expenses! Quality and complete records are key. Whether this is done by you or your trusty bookkeeper, sailing into your tax professional’s office next tax season with well-organized books will not only be less stressful but potentially more profitable. Until next time, happy tracking!

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