4 Small Business Deductions with Big Impacts

It seems that every year at this time, I always get several calls from small business owners that are looking for a new accountant for various reasons. Ultimately, we end up reviewing their tax returns because of the following missed items from their previous tax preparer. These four things tend to make a huge difference on your tax return.

  1. Car and truck deductions. If you are self-employed, this is big. Did I say BIG?! There are one of two ways that you can take this deduction. You can either choose mileage or actual expenses. The most popular method is mileage, but you should choose based on what is best for you and your business. There are strategies to figure into this such as depreciation and the type of vehicle (car, vehicle under 6000lbs or vehicle over 6000lbs). If you’re choice is to use the mileage option, the rate per mile for 2018 is 54.5. There are several apps out there that can track your mileage and can help to classify the trip for you (Business, personal, medical, charity).
  2. Travel expenses. Travel expenses are expenses that you would spend on items such as hotels, airfare, car rental, taxi, tolls, etc… This expense is one of the least used in the business. It seems people are afraid to put down expenses where they traveled for a training meeting, shareholders meeting, tour the competitions store or building for research, conferences, or seminars, etc.… Travel expenses for your business would be 100% deductible. Now this is travel expenses… not meal expenses. This is something totally different. Which leads me into number three.
  3. Dining and entertainment. Dining and entertainment is one of those expenses that are a little different. They are classified as 50% or 100%. Let’s start with what is what’s 100% deductible. As a general rule… was it on the company’s property? Did you make a presentation of some sort? Did the employees stay late to meet a deadline and you bought dinner and had it delivered to the office? If you’re answers were YES, then it’s 100%. If not, then call it the 50% category. This is where everything else will fall in place. This category is for all your travel meals, business luncheons, discussing business with your business partner or client. I would suggest keeping a log of who was at the meeting and what was discussed. If you’re ever audited, this will help. On a side note, dining and entertainment expenses are not for your daily breakfast, lunch, or dinner if you are within your normal commute range of your office or home office. Speaking of home offices, leads me into number four.
  4. Home office and supplies. This one is a biggie! Years ago, someone started a viscous rumor that if you took the home office deduction, you increased your chances of getting audited. Absolutely untrue! If it were true, the IRS wouldn’t have created a simplified version to the home office deduction. To take the deduction, it must be your “principal place of your business” and be used “regularly and exclusively” for conducting business. Now, for the two ways you can take the home office deduction. One is the simplified method and the other is the regular method. The simplified method gives you a standard deduction of $5 per square foot and a maximum of 300 square feet. The regular method might allow for a higher deduction than the simplified method, but with the current tax laws requires taking some of the deductions from your schedule A to maximize the deduction. Also with supplies, many companies are regularly upgrading their computers, phones, and tablets. These can all be deducted fully in the year that they are expensed.
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