11 Ways for Small Businesses to Save Money During Tax Season
Owning and running a business can be an expensive venture, particularly during tax season when Uncle Sam comes sniffing around.
While you obviously can’t avoid paying taxes altogether (unless your last name is Musk or Bezos), there are ways you can avoid hemorrhaging money to the IRS. Here are some common lesser-known expenses that your business may be able to write off during tax season. (Though, please bear in mind that it is always best to check with your accountant on such matters.)
1. Business Meals
If you are a small business (which simply means you have 50 or less employees), you may be able to deduct 50% off food and drink expenses if:
- You can show a direct correlation between your business and said meals/beverage expenses
- You can provide documentation of 1) Date and location 2) Business relations with people involved and 3) the total cost. (Usually, a receipt is an acceptable means of proof – particularly if you write details on the back.)
2. Traveling Expenses
All expenses related to business travel can be written off during tax time. This includes airfare, lodging, rental cars, gas, Uber/public transportation, tips, dry cleaning, and more. Here is a complete list of acceptable business trip write-offs. To qualify as a business trip, it must meet the following criteria:
- The trip must be necessary for your business.
- The trip must take you away from your “tax home” (the city or area in which your company conducts business).
- You must be travelling away from your tax home for longer than a normal workday and it must require you to sleep or rest en route.
3. Work-Related Car Use
If you have a work vehicle that is strictly used for work-related things, you can write off all costs associated with operating and maintaining it.
If your car’s utility is for a combination of business and personal stuff, you can only deduct costs related to the business side of the vehicle. You can claim the mileage you use for business driving, either by deducting the actual miles traveled for business, or by using the standard mileage deduction of $0.56 per mile.
4. Business Interest and Bank Fees
This is one of the more obscure business write-offs that many business owners either don’t know they can do or forget they can. If your company borrows money from a bank for business-related expenses/investments, the bank will charge interest on that loan. You can deduct that collective interest on both your business loans and credit cards. If that’s not exciting enough, check this out: You can also write off any fees and additional charges that your business accumulates such as monthly service fees and annual credit card fees.
When you deduct depreciation, you’re actually writing off the cost of a big-ticket item over the anticipated use of that item (as opposed to deducting it all in one go for a single tax year). Generally speaking, a company will usually deduct depreciation for long-term business investments that are more costly, so they are reimbursed for the expense over the entire lifespan of said item. Here’s how to calculate the depreciation of (for example) an expensive piece of equipment:
Total cost of the asset / Useful lifetime of the asset = Depreciation
Ex. 3D Office Printer that usually lasts 10 years:
$10,500 / 10 = $1,050
So, your fancy-shmancy 3D printer depreciates in value roughly $1,050 each year. This can be deducted from your taxes.
6. Salaries and Benefits
If you’re a small business owner with less than 50 employees, you can write off their salaries, benefits, and even vacation pay on your tax returns. However, there are certain criteria your company must meet in order to take advantage of this write-off:
- The employee/s is/are not a sole proprietor, partner or LLC member in the business
- The salary is reasonable and necessary
- The services delegated to the employee were provided
Any educational avenues pursued to increase the value of your business are fully tax deductible. To meet the IRS’s requirements, the education-based expenses must be shown to help improve your skillset or help maintain your position as an expert. Examples include taking courses/classes in your field of work, participating in seminars/webinars/meet-ups, purchasing learning material like books and subscriptions, etc.
8. Medical Expenses
Many people aren’t aware that, if you’re self-employed and pay for your own insurance, you can actually deduct your health and dental care insurance premiums! You can do the same for doctor’s fees, prescription drugs, and home care.
9. Advertising, Marketing, and Promotional Content
Another fun fact: If you’re a business owner, you can fully deduct expenses associated with business promotions including digital and print advertising, website design and maintenance, software program expenses, and social media/Google/PPC Ads.
10. Startup Expenses
This write-off is particularly nice if you are a new business and are still struggling with everyday costs. If you launched a new business venture in the same year you are trying to reduce costs to the IRS, you can deduct as much as $5,000 in startup expenses that you incurred before the launch of your business. That can include costs associated with marketing, travel, set-up, training, etc.
11. Business Insurance
Which brings us to one of the most obscure business write-offs you can leverage: costs associated with business liability insurance.
Since the IRS considers business insurance part of the cost of owning a business, your policy premiums can be deducted from your taxable income; you’ll just have to fill out a few forms to take advantage of this deduction. Either we at Ashlin Hadden Insurance or your business accountant can help with this process.
While you can almost always deduct your company insurance premiums, you may run into some gray areas if you are a sole proprietor who also wants to deduct health insurance premiums. In some cases, you cannot do both (which, again, is why we recommend doing this with a professional).
To start the processes, fill out the government forms below:
Generally speaking, the IRS includes the following types of businesses insurance policies as appropriate tax deductions:
General liability insurance: This policy protects your business if a third-party sues you over bodily or property injuries caused by your company’s mishandlings.
Professional liability insurance: This is a form of malpractice insurance and covers lawsuits over company negligence.
Business Interruption/Commercial Property Insurance: When your insurance holder pays for the cost of repairing or replacing damaged or lost business property.
Cyber liability insurance: Third-party policies cover lawsuit expenses if your company is responsible for someone else’s data breach; first-party policies cover response costs when your business suffers at the hands of a breach.
Workers’ Comp: Your insurance company pays your employees’ medical expenses and lost wages after an injury or illness on the job.
Commercial Auto Insurance: This policy covers liability and property damage as a result of accidents in business-owned vehicles.
Unemployment Insurance: Generally speaking, you can deduct the amount you contribute to a state fund.
Health insurance and life Insurance: These policy premiums can be deducted if (and only if) they are for employees.
In conclusion, while discussing insurance and taxes is about as exciting as waiting at the DMV, it’s a necessary part of life AND can end up saving you a significant amount of money when you go to pay your business taxes. It’s always best to comb over your options with a professional accountant, tax specialist, or even an insurance broker like Ashlin Hadden Insurance.