Tax Deductions for Small Business Owners

Tax Deductions for Small Business OwnersDon’t miss out on these frequently overlooked business tax deductions

It isn’t always the tax deductions with the biggest dollar amount that bring the best return to your small business. Making sure not to miss out on any deductions — big or small — is the surest way to achieve big savings.

According to the IRS, “Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit….To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” The definition sounds a little scary and overwhelming huh? Well, let’s break this down into helpful insight.

In order to ensure that you take all of the deductions you can for your small business, it is important to pay attention to these commonly overlooked business deductions.

According to the U.S. Small Business Administration (SBA), education is one of the top four commonly missed business tax deductions. If you take continuing education classes or training courses in your line of work, you can take deductions for the cost of the class itself, as well as travel time to and from classes.

Deductions that require frequent documentation are often the first to be forgotten, and miles are the perfect example of this fact. Although most business owners are aware that they can take deductions for any driving they did for business purposes and get paid part of a dollar for each mile (55.5 cents in 2013), they are discouraged by the requirement to keep detailed records.

“Whether it’s a quick trip to the bank to deposit a client’s check or an overnight ride to meet with a customer, small business owners can write off any mileage they put on their vehicle as long as it’s to conduct business,” states Donna Fuscaldo from FOX Business online.

These miles can add up to big savings, so it’s important to record them all. Two great ways to keep track are by using a driving direction website to record all trip lengths and by noting the miles in your electronic calendar where you record meetings and trips.

You may also be eligible to deduct the actual cost of the vehicle and parking and tolls. Just be sure to keep detailed records of everything.

Home Office
Small business owners frequently neglect to claim deductions for expenses that are viewed as “red flags” by the IRS.

“The home office deduction is one of those big write-offs that everyone is skittish about,” states Donna Fuscaldo. “After all, there are specific rules about what constitutes a home office and run afoul of those rules and fear sets in that an audit will be coming.”

Although you will need to provide ample documentation to appease the IRS, deductions for your home office can add up big time. One potential deduction will help you offset the depreciation of the value of your home resulting from the space used exclusively for your businesses. You may also be able to deduct a percentage of home expenses proportionate to the size of your home office, such as for insurance, rent, maintenance and utilities.

Health Insurance
According to Keith Gilabert, SBA online community contributor, health insurance deductions ranked in the four most commonly overlooked deductions for small business owners in the 2013 tax year.

“If you have fewer than 25 full-time equivalent employees who have average annual wages of $50,000 or less and you pay at least fifty percent of their qualifying healthcare premiums, then you should take advantage of the Small Employer Health Care Credit,” states Gilabert.

Phone Use
The daily operations of all businesses require frequent phone calls, and with our increasingly on the go, multitasking business paradigm, this usually means talking on cell phones. Fortunately, the cost of business cell phone use falls under the realm of business property and can be deducted as such.

Paying attention to commonly missed tax deductions can add up to big savings, and so can doing business with the right bank. Give us a call or stop by any one of our Banking Centers today to find out more information on the banking products we offer and consult your tax advisor or accountant for tax advice.

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