As a small business owner, you’re likely adept at managing numerous responsibilities to keep your enterprise thriving. However, when tax season arrives, it’s easy to miss out on valuable deductions that could significantly lower your tax liability and improve your bottom line. Overlooking these write-offs is like giving away your hard-earned money.
To help you prepare for a more profitable tax season, here is a list of ten commonly overlooked tax deductions that every small business owner should be aware of.
1. Home Office Expenses
With the rise of remote work, more entrepreneurs are utilizing a home office. If you use a portion of your home exclusively and regularly for your business, you may be able to deduct a percentage of your housing expenses. This can include a portion of your rent or mortgage interest, utilities, and internet bills. The IRS offers a simplified method allowing a deduction of $5 per square foot for up to 300 square feet.
2. Business Use of Your Personal Vehicle
If you use your personal car for business-related travel, you can deduct the associated expenses. The IRS provides two methods for this: the standard mileage rate or the actual expense method. The standard mileage rate is a set amount per mile driven for business purposes. Alternatively, you can track the actual costs of gas, repairs, insurance, and registration, and deduct the percentage of those costs that correspond to your business usage.
3. Health Insurance Premiums
Self-employed individuals may be able to deduct the premiums paid for medical, dental, and long-term care insurance for themselves and their families. This deduction can be a significant saving, especially with the rising cost of healthcare.
4. Bank Fees and Credit Card Processing Fees
Monthly service charges, overdraft fees, and transaction fees from your business bank accounts are often forgotten but are fully deductible. Similarly, the fees you pay to third-party payment processors like Stripe or PayPal can be written off.
5. Software Subscriptions
The annual or monthly fees for software essential to running your business are deductible. This includes accounting software, project management tools, cloud storage, and other industry-specific applications.
6. Business Insurance Premiums
Premiums for various types of business insurance are typically deductible. This can include general liability, professional liability (errors and omissions), commercial property, and business interruption insurance.
7. Continuing Education
Expenses for education that maintains or improves your skills in your current business are deductible. This can include the costs of webinars, seminars, and industry publications that help you stay current in your field.
8. Startup Costs
For new businesses, the initial expenses incurred before you officially open your doors can often be deducted. You can deduct up to $5,000 in startup expenses in your first year of business. These costs can include market research and initial advertising.
9. Bad Debt
If you have a customer who fails to pay you for goods or services, and you’ve previously included that amount in your income, you may be able to deduct it as bad debt.
10. Retirement Plan Contributions
Contributions to retirement plans for yourself and your employees can provide a significant tax deduction. Plans like a SEP IRA, SIMPLE IRA, or 401(k) not only help you save for the future but also lower your taxable income today.
Navigating the complexities of the tax code can be challenging, and ensuring you’re taking advantage of every available deduction requires careful planning and record-keeping. While this list provides a starting point, every business is unique.
At Kohani & Associates, we specialize in helping small businesses like yours maximize their deductions and maintain compliant financial records. If you have questions about these or other potential deductions, or if you’d like to ensure you’re not leaving any money on the table, we’re here to help. Contact us for a consultation to see how we can support your financial success.