If you’re a small business owner, you’ve got a lot on your plate. Plus, taxes are complicated. It’s easy to lose sight of things, forget to claim expenses, or not realize that certain items are deductible as business expenses in the first place. Fortunately, you’re not alone when you’re trying to figure out your taxes.
Tax season doesn’t have to be full of stress and trying to balance everything. It’s tempting to just rush through taxes and get them finished, but the fact of the matter is that you’re doing more harm than good to your business if you’re not making the most of your business tax deductions.
Entrepreneurs don’t get the same breaks or deductions as individual taxpayers. In order to maximize your tax filing, you have to itemize deductions. Unfortunately, a lot of those people don’t understand how to do that, or even what the best tax deductions are. Then, you add in the changes to tax laws, adjustments to deadlines and payments, and the increasing availability of technology that can also be added to the deductions list—in mere minutes, you’re overwhelmed and ready to be finished before you’ve even started.
In the list below, we’ll take a look at the 10 most common tax deductions that small business owners either aren’t familiar with or they just overlook. At Smith.ai, we know all too well the value of maximizing deductions and getting the most out of every single thing that you do. In fact, one of our tips includes deducting the cost of services like ours and other contractors when doing your taxes.
At the end, we’ll talk about how our dedicated virtual receptionists can become one of your best business expenses by fielding live chats, phone calls, and other customer needs 24 hours a day, seven days a week. For now, let’s get to the list.
There are dozens of different tax deductions for small businesses. The ones that you claim may be different than what another business claims, so you’ll have to make sure that you know what’s best for you. If you’re trying to find all the extra pennies that you can, here are 10 commonly overlooked deductions that need to be on your list next tax season.
This is, by far, one of the most overlooked areas for text deductions. Petty cash is easy to spend without paying a lot of attention. These minor purchases add up quickly over time and even if you think they may be nominal in the grand scheme of your business, they can easily become a big expense if you don’t track them and keep tabs on how much you’re spending.
What can help is if you get a ledger or even just a notebook and track each and every expense. When you buy something, save the receipt and log the transactions. Then, at tax time, all that you have to do is take the time to input those records into your taxes and you’ll have an instant deduction that will probably save you a small fortune. Just remember to save all your receipts.
Whether it’s a pack of pens or some printer paper, if you’re an entrepreneur or small business owner working out of a home office, every single business-related expense is a tax deduction. This includes the office space itself. If your office takes up 500 square feet of your home, you can calculate how much you spend on that square footage in terms of mortgage or rent and utilities, and then deduct all of that from your taxes.
Home businesses are the backbone of many SMBs that are just starting out. It only makes sense to be able to deduct qualifying expenses because you are using your home for business. This set of deductions on your taxes is often referred to the business use of your home.
Do you use your vehicle for business at all? Perhaps your business involves several company vehicles. There are several expenses that you can deduct here. The one that a lot of people don’t even bother with is mileage, but you really can rack up a good deduction if you take the time to track it all. Plus, there are other vehicle expenses to consider here.
Routine maintenance, repairs and service, and even the vehicle itself can become tax deductions for your business. This is an area where the IRS sets their own standard deductions, making it easier for you than tracking all the mileage and expenses yourself. You can choose to do it either way, though, depending on what your business needs. It’s usually best to check the standard mileage deduction and then decide from there how to proceed.
Did you know that your debts may actually benefit you in some ways? Namely, there’s the chance to claim the interest from your debts as a tax deduction if they meet the right criteria. If you are securing debt to help run your business, you can count that interest as a deduction. You could also be able to include other debt interests, but they must be relevant to the business.
Business lines of credit and loans are the basis of any solid organization. You can’t get away without using them, but you can find perks from having to use these services, such as the ability to claim interest payments as tax deductions.
Does your business donate to charity or give money to good causes? Any money that you contribute on a donation basis can be considered a tax deduction. If you’ve ever donated, you’ll know that they always offer a receipt of the contribution so that you can file it with your taxes. Too often, people shrug off this receipt or don’t think that it’s worthwhile. If, however, you are going to make the most of your taxes, you need to make sure that you take all the deductions you can.
Philanthropy can do a lot for your brand image and help you feel better as a business owner when you are giving back to the community around you. It is often hard for SMBs to find the funds to donate, thinking it’s money that is just done. However, when you realize that you can claim a deduction for them, it becomes much easier to help where you can.
Organizing and starting a business is not just a big process, it’s also a big expense. All of the startup and organization expenses that you pay can be deducted. The IRS even has a handy schedule for new businesses, allowing them to claim a deduction of up to $5,000 for the first year’s tax return. After that, the costs can be amortized over the course of 15 years, depending on the determination of the IRS.
These expenses could include legal fees, state and local registration fees, professional fees, and other expenses that are involved in starting your business. If you can find an expense that’s related to the creation or purchase of your business, you can add it to this list.
As we mentioned at the beginning, any contractors that you pay for services can become a tax deduction. Contract labor could include anything from a marketing writer that you hire for a blog posting gig to the services of a team like Smith.ai, offering full virtual receptionist and live chat support solutions for your brand. Not only are you making an investment in a service that your business needs when you hire contractors, but you’re also giving your business the chance to have another tax deduction.
You should make sure that your contract labor matches the needs of your business. Knowing that there’s a deduction available for this expense often makes it easier for businesses to justify the investment. If you’re not deducting contract work, you’re missing a big chunk of change.
How much are you spending on business insurance? This is another tax deduction that several people overlook. There are several different insurance products that you need for your business, and each has its own expenses and premiums to consider. However, your primary goal will be to ensure that your business gets the coverage that it needs regardless of the cost.
It's just a bonus that you can deduct your insurance expenses and it’s a bonus that you need to take full advantage of when filing your taxes. Bear in mind that health insurance has some rules regarding what you can claim, such as when there are self-employed situations where it might be necessary to claim the insurance deduction on a personal return instead of your business tax return.
Did you know that your advertising expenses are deductible? You’re going to advertise anyway, after all, and you might as well get more out of it when you can. Ordinary advertising and marketing costs can be deducted from your business taxes. The best part is that it doesn’t matter what type of media you are using or what kind of marketing you do. From business cards to your Facebook ad campaigns and everything in between, you can deduct all of these expenses as “Advertising expenses” and get a big deduction on your taxes.
Even today’s digital advertising campaigns offer a lot of room for deductions, so don’t forget a single dime that you spend promoting your brand.
Finally, we’ll close with the QBI (qualified business income) deduction, which is a deduction designed specifically for business owners. It lowers the tax rates that are paid on an owner’s personal returns when it comes to the business profits. You may find limits or eligibility requirements in place, but generally the deduction makes up 20% of the QBI.
You can also learn more about this particular deduction at the IRS website, which has a lot of great resources for small businesses looking to learn about how to make the most of their taxes.
There are a number of other random and miscellaneous expenses that you may find yourself paying when you are running a business. You'll be happy to know that several of them are tax-deductible, so long as you keep your receipts and track every single dime that you spend. It’s easy to just spend without paying attention, but when you do that, you’ll miss a lot of great deductions that you could claim as “necessary and ordinary” for your business and its operation.
What are we talking about? Well, consider things like:
These are just a few of the groups that you’ll want to check when you’re considering business tax deductions. If you can justify them and you have a record, you should claim as much as you can. After all, you should be able to make the most of your business taxes without investing maximum effort. With this list, it should be much simpler.
And speaking of making things simpler, ask how the dedicated virtual receptionists at Smith.ai can provide simple solutions to streamline customer communications, including everything from live website chat to phone answering services, after-hours customer service, appointments and intake, and so much more.
Plus, remember that our expense is a tax deduction, so you’re making an investment in your business and it’s one that will repay you in several ways. We can even help you come up with the perfect strategy for fielding all customer needs, no matter what your business needs.
You can learn more when you schedule a consultation to discuss our virtual receptionists and the 24/7 solutions they offer for live chat, payment collection, after-hours answering, Facebook and SMS message answering, and so much more. You can also reach us at email@example.com or by calling (650) 727-6484.
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