I know. We don’t want to think about taxes. The fact is, it’s never too early to start preparing your taxes and looking for tax deductions for entrepreneurs. Previously, we recommended that entrepreneurs should actually work on their taxes before the end of the year.
Starting early will save you time and prepare you for how much you may owe. Even more important it allows you to make changes and have time to seek professional advice. Additionally, it gives you the time to take a closer look at the deductions you may be eligible for, like the following twenty-five tax deductions for entrepreneurs.
1. Advertising
Did you purchase ads, business cards, brochures, sponsorships, or swag that features your business name? If so, you can deduct these advertising expenses on Line 8. This also includes online advertising.
2. Board Meetings
If your board had travel for a meeting, their travel and even entertainment costs can be deducted. This is also true if the consists of just your and your spouse. Just make sure that you keep detailed and accurate records to validate that the meeting was related to your business.
3. Business Association Membership Dues
As noted in Nolo.com, “the dues you pay to professional, business, and civic organizations are deductible business expenses as long as the organization’s main purpose is not to provide entertainment facilities to members.”
Examples include the dues you pay to professional organizations, local chambers of commerce, trade associations, and civic or public service organizations.
4. Business Interest and Bank Fees
The fees that you incur during the year on loans that you have taken our for your business can be written off. You can also deduct any checking account bank fees on your Schedule C.
5. Business Travel
Did you travel for your business? Whether if it was meeting with an investor, client, or attending an industry event you may be eligible to deduct these travel-related items. These can include flights, hotel rooms, car rentals, and even dry cleaning.
6. Charitable Contributions
Any charitable contributions that you’ve made from your business can be deducted. In most cases, this cannot be more than 50 percent of your adjusted gross income. As such, make sure you discuss this with your accountant so that they can devise the best plan for you.
7. Child and Dependent Care Expenses
The cost of placing your child in daycare, or even having in-home care, in order for you to run your business can get pricey. Thankfully, this is a fully deductible expense for the year!
8. Education and Development
Did you attend a conference, enrolled in a class, or participated in a webinar this year to enhance your professional skills? According to the IRS, “If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally, Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040).”
9. Equipment
Regardless if you purchased or rented equipment that your startup needs to function, you can deduct these expenses. However, according to Section 179 of the Internal Revenue Code, you are able to deduct up to $500,000 off the cost of new equipment or other assets.
Furthermore, if this equipment breaks this year, you can deduct the cost of repairs and maintenance.
10. Health Insurance Premiums
As long as you have less than 25 full-time employees, or are self-employed, you can deduct qualifying health care premiums. You can also deduct the premiums you paid through an insurance plan.
11. Home Office
If you use part of your home for your small business, then you can claim “$5 a square foot for up to 300 square feet.” The IRS even went ahead and created a simplified option to make computing the business use of your use a lot easier to calculate.
If you don’t work from home, you can deduct the co-working space you rent or the workplace that you purchased.
12. Inventory
As mentioned on the American Express OPEN Forum, “inventory items aren’t immediately deductible.” However, “a business with inventory uses the accrual method of accounting and includes inventory items in the cost of goods sold, which reduces the amount of income recognized on the sales.”
“Under a special rule, however, certain small businesses can use the cash method of accounting and opt to treat inventory items as materials and supplies, which are currently deductible.”
13. Legal and Professional Fees
If you hire a lawyer, accountant, bookkeepers, or any services that help you manage the necessary tasks of your business this year, then you can fully deduct these expenses from your taxes under your Schedule C.
14. License, Permit, and Tax Fees
When you start a business, licenses and permits are inevitable at the local, state, and federal levels. The good news is that these can be deducted. You can also get a deduction for renewing these licenses and permits.
Furthermore, the IRS allows the following tax deductions for entrepreneurs:
- Real estate on the property of your business. If you work from you can only deduct a percentage.
- Federal unemployment tax.
- State and local taxes.
15. Medical Care Expenses
Do you pay for your own medical premiums? If so, you can deduct those expenses. You can also deduct any additional medical costs you have for the year. The exception is if you’re able to participate in your spouse’s plan.
16. Moving and Shipping Expenses
If you relocated your startup, then you can deduct those moving expenses.
Also, if you’re shipping your product, you can deduct postage, shipping meter subscriptions, and delivery charges.
17. Mortgage Interest Paid
Do you own property? Then you’re able to deduct any interest on your mortgage – regardless if you improved your home, built it, or bought it. Any interest that’s related to your homeownership is deductible when you file your Form 1040.
18. Office Supplies
Office materials like pens, paper, books, and printer cartridges are all fair game when it comes to deductions. This should go on Line 18. And, as always, keep your receipts so that you can add up the correct total.
19. Employee Benefits/Wages/Reimbursements/Payroll Taxes
If you have employees, then the benefits, wages, reimbursements, and payroll taxes that have been made throughout the year can be claimed.
20. Repairs and Maintenance
Let’s say that your laptop or 3D printer busts and needs to be repaired. No worries. This can be claimed on Line 21.
21. Research and Development
“The tax law includes a special category for research and development expenses,” writes Stephen Fishman, a self-employed tax expert, on MileIQ.
“These are costs a business incurs to discover something new in the laboratory or experimental sense. This could be a new invention, formula, prototype, or process.”
Fishman adds, that “R&D costs are currently deductible under Section 174 of the Internal Revenue Code.”
22. Retirement Contributions
If you contribute to an IRA, then these amounts can be deducted. Retirement contributions can be found on Form 1040.
23. Software, Hardware, and Online Services
All of your business-related software, hardware, and online services are deductible. For example, accounting software, new computer, and your domain and web hosting are eligible.
24. Subcontractors
What if you hire independent contractors or freelancers like a web designer for your site or the writer for your blog? Yep. They’re deductible. You can claim these costs on Line 11.
25. Utilities
Electricity for your facility is fully deductible. Other utility costs include your internet, cell phone, and landline charges. Even trash can be deducted if you pay for its removal.
Tax Deductions For Entrepreneurs and Business Owners
Now that you’ve got twenty-five tax deductions for entrepreneurs, let’s wrap things up by sharing these valuable tax tips.
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Find an accountant.
They understand how tax deductions work and the rules of the game. To get started here are 25 tips for finding the best accountant for your business.
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Keep accounts separate.
This means having separate credit and checking accounts – one for personal use, the other for business. It makes tax preparation easier and avoids any mishaps.
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The IRS treats various types of income differently.
Your operational and legitimate business is taxed differently than your side hustle or hobby. Furthermore, you can only get deductions for a legit business, not your hobby.
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Don’t forget about quarterly taxes.
Self-employed entrepreneurs are usually responsible to file an annual return and pay estimated quarterly taxes.
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Know what’s an expense and what isn’t.
Generally, a tax write-off is any costs or expenses that are ordinary and necessary in your industry or will help your startup grow.
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Some business “write-offs” must be amortized over time.
In other words, even though your business assets or equipment can be claimed, some will be spread out over time.
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Basis.
According to the IRS, “Basis is generally the amount of your capital investment in property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange, or other disposition of the property.”
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Most tax deductions are “entity-agnostic.”
This means that most tax write-offs are available to you regardless if you operate as a sole proprietorship, LLC, or corporation.
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Don’t incur expenses just for the deduction.
If you don’t need it, then don’t buy it just because you can claim it. Spending carelessly will run your startup into the ground. Only spend money on the things your startup needs.
