By Bert Seither, Vice President at 1800Accountant
About the author: Bert Seither is the Vice President at 1800Accountant, the nation’s leading accounting and consulting firm for small businesses and entrepreneurs. For over a decade, Seither has assisted thousands of small business owners by helping them achieve financial freedom.
If a price tag was put on the amount it costs to get a small business off the ground, there likely would not be enough room on the tag for all the numbers. That’s because diving into business ownership can be a very expensive proposition. Fortunately, the IRS offers entrepreneurs some much-needed financial relief in the form of tax deductions. These 5 small business tax deductions are frequently overlooked and go unclaimed, but they can help you save lots of money.
1. Deducting vehicle expenses
Writing off vehicle-related expenses that you incur as a self-employed individual or as a business owner can save you a nice chunk of change on your taxes. In order to qualify for this deduction, you must use your vehicle to travel from a home office or a place of employment to a separate location for business purposes. There are two basic options on claiming this write-off – either total mileage or actual expenses. The standard mileage rate for 2014 is 56 cents per mile. This means you can claim this amount for every mile you drive for business reasons. If you opt for the actual expenses route, you can generally include fuel, tolls, vehicle maintenance, and insurance when determining the amount you can write off. Be sure to explore both of these options to find out which one will benefit you most in terms of tax savings.
2. Deducting Home Office Expenses
If you do any type of work from home and use an area of your residence for business purposes, you might be eligible for the home office deduction. You can write off a percentage of the costs you incur that are necessary for conducting business in a home or apartment. Qualifying expenses include mortgage interest, insurance, rent, power, repairs, and even Internet access. Just be aware that these expenses have to be specifically associated with business activities you do from home. In addition, they should be part of a room or area of your home that you designate for business activities. In 2013, the IRS enacted a simpler, flat-rate alternative to handling the home office deduction. This option allows small business owners to claim $5 per square foot for up to 300 square feet of home-based office space. However, there is a maximum deduction limit of $1,500 when using this alternative method.
3. Writing off medical expenses/health insurance premiums
Medical expenses and health insurance premiums are normally eligible for a tax deduction for formal business owners and self-employed professionals. If you have a self-insured medical reimbursement plan that you use for medical care, you may be able to write off up to 100% of your out-of-pocket medical expenses. On a related note, medical costs incurred for the spouses and dependents of small business owners are eligible to be deducted in many cases.
4. Deducting the costs of business-related meals and entertainment
A popular yet often overlooked tax deduction for new business owners revolves around meals and entertainment. In the words of the IRS tax code, meals and entertainment activities must be considered “ordinary and necessary.” They have to be directly tied to conducting business in some fashion. If you meet with your business partner, investor, or a client to talk about projects or ideas related to your small business over a tasty seafood dinner, you can claim 50% of the tab as a business tax deduction. Don’t forget to save all of your restaurant receipts. Document the names of the participants involved in a meal, along with what topics were discussed.
5. Charitable contribution deductions
While it’s not specifically a business deduction, any non-cash contributions you make to qualified charities can be a tax-saving write-off. The value of certain items like clothing, furniture, and household goods is fully deductible in most instances. Many non-profits also accept used vehicles that meet certain standards, which you can claim as a deduction as well. Don’t forget to save any receipts or handwritten acknowledgements you get for these donations from your charity of choice. The IRS requires proof of your charitable contribution for it to be considered a legitimate tax deduction.