As we gear up for tax season and another round of the tax-reform era, here’s what small businesses need to know about tracking and deducting their eligible business expenses. Everything adds up, so be sure to organize and plan accordingly; otherwise, you’re paying too much in taxes.
1. Wages, commissions, payments
Small businesses can deduct wages paid to employees or payments made to independent contractors. If you’re a real estate agent, for example, you can also deduct the commissions paid out to other agents or sales people, etc.
2. Marketing and advertising
The cost of marketing and advertising is 100 percent deductible. Whether you’re launching a new website, running a social media marketing campaign, or sponsoring an event, these expenses can be deducted on your Schedule C.
3. Business travel and auto expenses
Between mileage, business meals & entertainment and the cost of your car, you can deduct between 50% and 100% of the cost of business travel and auto expenses. There are some restrictions that apply.
4. Office space or home office & utilities
If you rent office space, not only can you deduct those expenses on Schedule C, but if you have a designated home office space, you may be able to deduct a percentage of your housing expenses as well. The simple formula is $5 per square foot. The standard formula is adding up all (everything!) that goes into maintaining your home and multiplying these expenses by the percentage of your home designated for business use.
5. Self-employed health insurance
You and your family’s health insurance premiums could be deductible if you pay for your own health insurance coverage. These expenses would be deducted on Form 1040, not Schedule C.
6. Self-employment tax
Similar to Social Security and Medicare tax taken out of a paycheck, small business owners are required to pay self-employment tax, currently at a rate of 15.3%. You may be eligible to deduct 50% of this tax, regardless of whether you itemize or take the standard deduction.
7. Fees, licenses, memberships, and insurance
Small business owners are eligible to deduct fees associated with maintaining or upgrading a professional license, joining a professional organization, or paying business insurance premiums, among others.
8. Software and business tools
Quickbooks, time management software, and scheduling software are all examples of essential business management tools that are needed for many small businesses. Associated costs can be deducted from Schedule C.
9. Legal and professional services
Fees paid to accountants, attorneys, bookkeepers, etc. are fully-deductible business expenses. Even a portion of the expenses can be deducted if the fees related to the project are personal in nature, like creating an estate plan.
10. Education
Small business owners are always learning, and if you decide to pay for training for professional advancement, you may be eligible to deduct your tuition or related education expenses. Restrictions apply.
Next Steps
We’ve been working with small business owners for over 30 years and understand how to best position tax deductions to lower overall your financial burden. If you have questions about filing your taxes, we can be a valuable resource to you and your family. Call (781) 247-5569 or text the office line at (781) 790-4504.
Like what you have read? Please share with friends.
About Stu: With more than 30 years of experience as a tax professional, Stu Steinberg brings a broad depth of knowledge to his work with his clients. Stu founded Erock Tax to help provide tax and financial planning strategies to individuals, families and small businesses and is passionate about empowering his clients through education about their money health. Stu is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.