Introduction
One of the benefits of owning and running your own business is having the ability to take advantage of numerous tax deductions, as government policy encourages investment in production through commercial activity. Such tax benefits are not just for large corporations either since a lot of business-related expenses are deductible for individuals with a small business or home-based business.
Section 162 of the tax code and the IRS allow deductions for “ordinary and necessary” business expenses. The IRS defines an “ordinary” expense as anything that is “common and accepted” to a specific trade or business. The IRS defines a “necessary” expense as anything that is “helpful and appropriate,” but not indispensable. Therefore, lots of business expenses are deductible.
Office Equipment and Supplies
A common expense for most businesses is office equipment and supplies. You can deduct items such as computers, printers, software, website hosting fees, paper, file folders, and pens.
Work-Related Travel
You can deduct expenses related to transportation and travel costs. If you need to take a business trip, whether it’s to meet with a customer or client or to attend a networking event, keep a travel log stating the business purpose of the trip and track of your expenses. Then, provide it to your accountant for preparing your tax return.
Professional Organization Fees
You can deduct professional organization dues and fees, except for any portion deemed political. Usually, the organization will provide some guidance on how much of their dues go towards political purposes. As an example, you can usually deduct chamber of commerce membership dues, trade association dues, civic or public service organization dues, and dues for other professional organizations. You can also deduct continuing education costs incurred to keep your professional license.
Uniforms, Costumes, and Props
As a small-business owner, you can deduct work uniforms, costumes, and props. For example, theatrical costumes, hard hats, safety googles, gloves, and other safety gear should qualify.
Casualty Losses
Casualty losses to your business can be deductible. A casualty loss refers to damage or property loss resulting from a sudden, unexpected, or unusual event, such as an earthquake, fire, flood, tornado, terrorism, vandalism, or volcanic eruption.
Home Office
Those working from home may be able to claim a home office tax deduction. The deduction is limited to individuals who have a home-based or small business and have a dedicated space in their home that is devoted exclusively to that business. You may be able to deduct expenses like mortgage interest, insurance, utilities, repairs and depreciation. To minimize the hassle of keeping track of all the home office expenses, there is even a safe-harbor provision you can take advantage of that your accountant can use when filing your tax return.
Charitable Contributions
While not solely a business expense, you can also deduct charitable contributions to qualified non-profit organizations. In addition to tax deductions, contributing to local charities can also provide many benefits to the community in which you live and work. Being involved in your community in this way may also have reputational benefits. Customers may want to do business with companies that are helping make their community a better place.
Keep in mind, however, that you will face limits on charitable contributions of 60% of adjusted gross income (AGI) for cash contributions and 30% of AGI for appreciated non-cash assets held for over a year. You can also deduct non-cash donations of up to $5,000 without an appraisal. Non-cash donations of more than $5,000 need an appraisal.
Conclusion
Keep track of your expenses throughout the year so you can take advantage of tax deductions for your business when it is time to file your tax return. Consult a qualified business attorney and your accountant for business tax advice applicable to your particular situation.
J. Brian King is an experienced business attorney and can be reached at https://businessattorneylaw.com/.