For many small business owners, it can be an overwhelming task to manage their books and all the accounting tasks necessary to run a successful small business. By consulting with a tax professional or accountant, such as Kenneth M Perkins CPA/PFS in South Boston, VA, you can be sure to take advantage of all the potential deductions that are available to your business. Here are seven of the top deductions that every small business needs to know about.
Auto Expenses – If you use your car for any business related trips or your business actually owns its own vehicle, then some of the costs of that vehicle are deductible. Keep in mind that newer cars might provide a larger deduction using the actual expenses method, because you can deduct depreciation on the vehicle as well. There are two methods for claiming these expenses:
Actual expense method – Track and deduct all your actual business related expenses
Standard mileage rate method – Deduct a certain amount for each mile driven, plus business-related tolls and any parking fees. The IRS website has the current standard mileage rate.
Expenses Related to Starting a Business – The costs of getting a business up and running are called capital expenses. You can deduct up to $5,000 the first year you are in business. Any remaining startup costs can be deducted in equal amounts over the course of the next 15 years. Taking the deduction over the course of several years can assist in helping to offset any profits during those years.
Bad Debts – If your business suffers a loss, it might be deductible. However, that deduction is based on the type of products you sell. If you sell goods, then you can deduct the goods sold but that you did not get paid for. Keep in mind that unpaid services are not deductible, so that time is just a loss for your business.
Travel – Anytime that you have to take a trip related to your business, then you can deduct a variety of expenses relating to that trip, including plane fare, operating your vehicle, lodging, meals and any form of public or private transportation, such as buses, trains or taxis. Keeping your receipts and tracking any additional expenses can allow you to determine with your tax professional what is an appropriate deduction and what will not apply.
Interest Payments – If you use credit to finance any of your business purchases, the interest and carrying charges are fully tax-deductible. This can even apply to a personal taken out to advance the needs of the business. By keeping good records, you will be able to demonstrate that the money was used specifically for the business.
New Equipment Purchases – Depending on the purchase, you might be able to fully deduct the cost in the year of the purchase. However, there is also the option of capitalizing those expenses and thus being able to deduct them over the course of several years. However, it is important to note there are limits on what you can claim in a year. Additionally, it is important to note that the equipment must be put in service during that year. For example, a server order in December needs to be in the office or place of business and functioning before the end of the year in order to be deductible. If the server is ordered, but does not arrive until January of the following year, then it cannot be deducted in the previous year, even if it was paid for in the previous year. Therefore, it is important to plan ahead to be sure of being able to take your deduction for these expenses.
Moving Expenses – If you need to relocate due to your employment or business, you can have the option to deduct certain moving costs. However, you must be sure that you are eligible, in so far as the business move is far enough away to qualify and that your reason for moving was your business. The actual deduction will not fall under your business deductions, but instead will be listed in a special place on your 1040 tax return.
As with all of these deductions, it is important to work with your tax professional or accountant to determine what applies to your particular situation. So depending on your small business, most of these deductions may apply to your business!
Kenneth M Perkins CPA/PFS