Tax deductions are music to the small business owner’s ears. Whether you are self-employed or are just starting up your own small business, it is time to reach out to your accountant to start tax planning for 2023. A great starting point for your conversation is this list of tax deductions to know about for small business owners.
Rent
If you are renting a space to run your business in, make sure to keep a copy of the rent checks you are sending your landlord each month. If you own the land you are running your business on, call your accountant to discuss your options to begin paying rent to yourself so you do not miss out on this tax deduction.
Utilities
Hold on to any utility bills you pay to run your business. These small bills can add up into some pretty sizable tax deductions. Business utilities may include: gas, water, sewer, phone, internet, cable television, trash pickup, and shredding services.
Home Office
If you are running your small business out of your home, do you know how much square footage you are using? The IRS allows business owners working from home to deduct $5 per square foot of your house, for a maximum of 300 feet using the simplified option for calculating this deduction. For larger spaces, you can use the regular method to figure out the percentage of your home used for business, but it’s a little more complicated. The IRS states that this workspace needs to be specifically designated for your job and needs to be used on a regular basis. Click here for the IRS’s guide to this deduction.
So, go ahead and start measuring because your accountant is going to ask how much of your home is used for business for tax planning purposes. This is one of the best tax deductions for small business owners to know about if they are working from home.
Auto
When using a vehicle for business purposes, you can choose one of two types of tax deductions:
- Deduct all recorded expenses related to the vehicle
- Deduct all recorded mileage using the IRS standard mileage rate (65.5 cents per mile in 2023)
No matter which option you choose, you will need to exclude any personal use of that vehicle before taking the tax deduction.
Depreciation
An important tax deduction to know about for small business owners is depreciation. If you purchase a large-ticket item for your business that is $2,500 or more, do not count on getting the full tax deduction that year. Oftentimes, the purchase amount will be divided over that item’s useful lifetime. Have your accountant walk you through the depreciation process when you start this year’s tax planning.
Insurance
Many businesses have several types of insurance to provide the coverage they need. These are fully deductible business expenses. Common types of insurance for businesses include: property, liability, malpractice, cybersecurity, auto, and workers’ compensation.
Office Supplies
Make sure to buy your business’s office supplies on a separate receipt from your groceries so you can deduct this easily missed business expense. Every little bit counts, and it is important to track how much money you spend on pens, paper, staplers, hole punchers, computers, and ink.
Advertising and Marketing
Businesses can get very creative with advertising and marketing expenses in a technologically-run society. Long gone are the days of billboards and business cards. With options like commercials and social media campaigns, advertising can get pricey fast. This is a tax deduction a growing business definitely wants to take advantage of.
Travel Expenses
Dropping off a business bill at the post office while you are vacationing in Vail does not make the entire trip tax deductible. However, if you are heading out of town for a couple of days on a business trip, you can deduct expenses like lodging and transportation.
Business Meals & Entertainment
If you find yourself taking clients out for dinner or to a conference, take a few quick notes to put with your receipt including who you took and how it pertains to your business. Note that as of 2023, meals and entertainment are only a 50% tax deduction, not 100% like in 2020 and 2021.
Interest & Bank Charges
If your business has any outstanding loans, check your latest statement for a breakdown of principal and interest. The total interest you pay each month can be deducted as long as the loan is through a traditional lender.
Employee Costs
Employees can be a company’s greatest asset – and greatest expense! It is imperative that you keep track of all employee-related expenses like salaries, benefits, and gifts in order to maximize your business’s tax deductions. Your accountant can help you dive into the rules to make sure you are getting the most out of these deductible expenses.
Education
Continuing education can be one of the most exciting tax deductions to know about for small business owners. Learning gives business owners and their employees more tools in their tool belts to help the business thrive. Check out fully deductible online courses and webinars that can help your team grow in leaps and bounds.
You may feel overwhelmed with all the tax deductions to know about for small business owners. Reach out to your accountant today to start tax planning so you do not miss out on these great growth opportunities for your business.
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