Tax season is here, and it’s time to rifle through your business expense records and make the most of any legitimate small business tax deductions you can claim to lower your overall taxable income. Unfortunately, many taxpayers who qualify for a variety of deductions—most notably the home office deduction—aren’t claiming them.
To help you claim the deductions you deserve, below are 10 small business tax deductions that may apply to your business. For more information specific to your business, always consult with your tax professional.
10 Small Business Tax Deductions You Shouldn’t Ignore
1. Health Care Tax Credit
If you provide insurance to your employees, under The Affordable Care Act eligible small businesses can claim a tax credit of up to 35%, if you meet the following criteria:
- You have fewer than 25 full-time equivalent employees.
- Your average annual wages paid out are below $50,000.
- You contribute 50% or more toward employee health insurance premiums.
2. Business Use of a Personal Vehicle
If you use your personal car, truck or van for business travel, you can write off the business portion of vehicle usage by either:
- Deducting your actual costs.
- Deducting business mileage based on an IRS-set rate. For the 2012 tax year, the rate was $0.55 per mile for the first half of the year. (The IRS recently released its standard mileage rates for 2013, which show slight increases from the current 2012 rates.)
You can also deduct parking and tolls. Remember to keep good records of all transactions. Make note of your mileage using your odometer or a GPS device, as well as the date of the trip, destination and purpose.
3. Business Travel and Entertainment Expenses
Small business owners may be able to claim most of the costs of doing business on the road. These include the cost of air, train or bus tickets, lodging, taxis, 50 percent of meal and business entertainment costs, dry cleaning and laundry costs, business-related calls and tips.
There are some limits to what you can deduct. For example, if you travel with a spouse or person other than an employee then you can’t deduct their expenses. There are also some restrictions on overseas travel deductions, cruise ship travel and attending conventions.
4. Home Office Deduction
Over half of all U.S. businesses operate out of the home, and many (not all) may be eligible to claim the home office deduction. The caveat here is that you can only claim the deduction (which may include phone bills, Internet fees, insurance, rent and more) if an area of your home is used exclusively and regularly for business use.
Working from your dining room table one day and from the den the next does not constitute exclusive and regular business use of that area. Read more about the home office deduction and look out for a simpler claims process which will make it easier to file for the deduction in 2014.
5. Start-Up Costs
Start a business in 2012? You can claim up to $5,000 of business start-up and $5,000 of organizational costs incurred before you opened your doors. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.
6. Professional Fees and Training Costs
Any fees associated with the following are fully deductible as a cost of doing business:
- Training (classes, seminars, certificates, books etc.)
- Professional organization membership fees.
- Fees for lawyers, tax professionals or consultants (although any work related to future years must be deducted over the life of that service/use).
7. Equipment and Software Purchases
The Section 179 deduction allows you to fully deduct the cost (up to $500,000) of assets purchased in 2012, including computers, furniture, certain business software, vehicles and manufacturing equipment. A new “Bonus Depreciation” provision also allows you to depreciate an additional 50% of the cost of certain property after you’ve taken the Section 179 deduction and in addition to the standard depreciation deduction. IRS.gov offers more information about Section 179.
8. Moving Costs
Did you move in 2012 as a result of your business? If your new workplace is 50 miles further from your home than your previous workplace, you may be able to deduct certain moving costs on your individual 1040 tax return.
9. Hiring Veterans
Did you hire a veteran in 2012? You may be eligible to claim a tax credit. Under the Vow to Hire Heroes Act of 2011, if you hired a veteran who had been unemployed for at least four weeks, you can claim a credit for 40% of the first $6,000 in wages (up to $2,400).
If you hire a veteran who’s been unemployed for at least six months, the credit goes up to 40% of the first $14,000 of wages (up to $5,600).
10. Charitable Donations
Charitable contributions can qualify as tax deductions against your business’ annual tax liability. Cash or other monetary contributions may be tax deductible as long as they are not set aside for use by a specific person. Contributions must also be made during the tax year to be eligible for a deduction, regardless of the accounting method you use.
When you file your claim you’ll need to use Form 1040, Schedule A and itemize each deduction. You can also deduct the fair market value donations of property, including inventory and any costs associated with volunteer work such as the costs for hosting a fundraising event. This guide from the IRS explains more about the charitable giving tax deduction.
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