Taxes aren’t fun. I don’t think there are many people that would disagree. There is a ton of paperwork, it’s all insanely complicated, and you may very well have to write a check at the end of the process. But it’s a requirement that we all must meet every year.
Since you can’t legally avoid it, then you should take advantage of all the gimmees the IRS provides for small businesses. Missing out on any of the below deductions is like throwing money away.
Throwing it away! Who would do that?? Not you!
So get out your calculator because here are 4 deductions for your business that you don’t want to miss.
Education
As entrepreneurs, we should never stop learning. Bettering yourself is the only way to stay relevant and to give your business a fighting chance to succeed.
Fortunately, your education expenses can be a significant source of tax savings. Up to $4,000 can be deducted per year depending on your income level. That’s a lot of learning!
Any classes, workshops, seminars, etc that helps you to maintain or improve your job skills will qualify. It can also be any training that is required by law to keep your status. So if you are required to complete continuing education credits to keep a professional status or license (think CPAs, financial advisors, lawyers, etc,), then you can deduct those expenses.
These expenses can include tuition, course fees, books, supplies, lab fees, and some transportation/travel fees that you incur.
Exclusions:
Now, it is important to differentiate between education for your business and personal education. It’s a very simple distinction to make with just one question.
Would you have taken the course if you didn’t own your business?
Taking a marketing seminar to help you hone the advertising for your virtual assistant business will absolutely qualify. A sewing class taken by that same person would not (unless they also have a business selling items they sew).
Any education required to set up your business also will not qualify. For example, an accountant taking the CPA exam can’t deduct its cost since it is a requirement to start a CPA firm. This is considered the minimum status for business and can’t be deducted. But their continuing education could be after the firm is established.
Professional fees
Running a business often requires the use of professional services. Good news! Those fees are deductible.
Fees you pay to independent contractors for services required to run a business can qualify. This applies to one time fees or recurring payments. As long as it is a necessary service for running your business, it counts.
Common professional services are CPAs, lawyers, system analysts, and, my favorite, bookkeepers! All of these contractors provide services that are required to run a business and the IRS will allow you to deduct those fees.
Exclusions:
Similar to education, you can’t deduct any fees associated with starting your business. These are considered start-up costs and you normally can’t deduct any expenses related to it.
For example, paying a bookkeeper to set-up your accounting system won’t qualify, but ongoing services do.
You also cannot include any fees related to the purchase of a business asset. Those fees would be included in the value of the asset and can’t be deducted.
Finally, any money paid to lobbyists can’t be deducted as a professional service. Generally, any expenses that can be construed as political are no-nos.
Client gifts
You love your clients. Sometimes you want to show your appreciation. And you can deduct those costs!
But only up to $25 per year, per person.
It may not seems like a lot, but this does not include any costs that don’t add to the value of the item. For example: engraving, packing, shipping, and insurance are not considered a part of the cost.
Exclusions:
This one does not include anything equal-to or less-than $4 that are branded and regularly distributed to customers. See the next item on this list for more information on this.
Somewhat related note: in 2018, under the Tax Cut & Jobs Act, you can no longer deduct meals and/or entertainment expenses related to your clients. That said, you should absolutely continue to track these expenses as many professionals expect further guidance from the IRS that may allow some deductions for meals.
Advertising and Promotions
Advertising is absolutely necessary for a business. As such, 100% of related fees are tax deductible. That’s right! 100%!!!
It would be foolish not to take advantage of this one.
This includes audio and visual ads through television, radio, billboards, fliers, and many more. The basic definition is advertising that sells a product/service, establishes good will, and/or increases the name recognition of your brand. That’s a pretty broad category.
Remember when I mentioned branded items $4 and less above? These are considered promotional items and are used to increase your brand recognition. So, you can deduct them!
This even means that you can include charitable donations as long as they result in more public recognition. The possibilities here are only limited by your imagination (and the IRS, obviously). Innovative people are always coming up with new ways to get their business out there and, as long as it meets the criteria, you can deduct it.
Exclusions:
Not a lot of exclusions on this one. A biggie is political ads. These cannot be deducted, same as most political activities
These 4 deductions can make a huge difference when tax time rolls around. Perhaps even to help you go from writing a check to getting a check.
So, ask your tax professional about deductions you qualify for, accurately track your expenses, and always keep a record of your receipts, preferably in your accounting software. Follow these steps and you can learn not to hate tax season!!