So, you finally did it.
You became your own boss.
But before you start shouting “Show me the money!” to everyone you meet on the street, it’s time for a quick reality check.
While being your own boss does have its perks (hint: nobody looking over your shoulder all the time, plenty of flexibility), there’s one sobering downside for many new small business owners.
That is, the money coming in might not be as consistent as what you’d see from a salaried gig.
Oh, and you’re also tasked with navigating the often-complicated world of filing taxes as a small business owner.
The good news, though?
Uncle Sam does his best to throw small business owners a bone when it comes to taxes.
Welcome to the World of Small Business Tax Deductions
If you’re self-employed, there are a ton of tax deduction provisions out there just for you. These deductions could save you anywhere between a few hundred to a few thousand by the end of the year.
And yeah, that’s a nice chunk of change.
This is precisely why you should start hunting for ways to reduce the expenses eating into your monthly revenue now. Doing so can save you some big bucks when tax time rolls around.
So if you want to turn your financial frown upside down, here are ten deductions you literally can’t afford to miss.
1. Do Any of Your Work from Home? You’re in Luck.
For me personally, most of my work happens from the comfort of my own couch.
And likewise, many small business owners designate a certain portion of their home as their “office.”
Maybe you have a dedicated room to get work done. Perhaps you’re more like me and enjoy a more laid-back workspace.
Either way, you can deduct the cost of that space thanks to a trusty home office deduction.
Now before you break out the champagne, consider a few ground rules if you’re looking to qualify:
- Your office space must be designated as the place where you conduct your business (hint: you can’t write off your home gym or child’s room)
- Your home office must represent the same spot year-round (no jumping from space to space)
- While there’s no specific obligation to mark your office space, you do need to define a particular area of the house where your work gets done
Now, let’s talk about calculating how much you save.
The easy way is to simply get the exact measurement of your office space and multiply the square footage by $5. For example, a 200 square-foot space would represent a $1,000 deduction. Bear in mind that the office space in question cannot be more than 300 square feet.
The second, more detailed calculation involves calculating each and every work expense that happens at home. Given that your office is a part of your house, your costs also encompass the following expenses:
- Cost of rent or mortgage
- Mortgage insurance and interest
- Utilities including electricity, water, gas, sewer and garbage
- Repairs done on the house
- Alarm and security systems
Now, take each individual cost here and multiply it by 10%. This represents the portion of your expenses which constitute office work. Adding up all those 10% deductions, you get a total which should be significantly higher than the simpler calculation.
Keep in mind that some of these details may have changed in the face of recent tax reform: do your homework accordingly before expecting an unrealistic deduction.
2. Save on Your Office Supplies
When you’re responsible for your own office supplies, every shred of paper is a penny saved.
Thankfully, you can deduct any money you spend on day-to-day office supplies such as reams of paper or folders.
However, hold off on including your favorite leather couch in the list.
While office furniture such as a desk or filing cabinet might make the cut, there’s a bit of a gray area here. Ask yourself: is your furniture only being used for “work usage?” If you want to ensure your returns stay audit-proof, it’s best to play it safe.
3. Don’t Forget Your Special Equipment
Some lines of work require specialized equipment to get the job done.
Whether it’s a new printer-copier or heavy duty machinery for an HVAC business, either are fair game if it keeps your business running.
Again, just make sure you’re only using them for work. For example, you can deduct phone bills, but only if you’re using a professional line and not a work line. That’s why a designated business smartphone is a smart investment.
As a nice bonus, you can actually claim repairs on such items as deductions, too.
4. Serious Software Savings
If you’ve invested in a billing and invoicing software or some other solution that streamlines your client relationships, you can totally deduct it.
This also rings true for any sort of subscription service or software, including your business’ Internet connection.
The good news about these deductions is that they’re relatively easy to confirm. For example, you’re obviously using the likes of vcita or Quickbooks because you’re a business owner, right?
5. Deductions for Hitting the Road
Required to travel for work?
Yeah? Well, there’s a deduction for that!
This not only includes the cost of a car rental or airfare, but also expenses such as…
- Parking fees
- Ride fare
- Shipping of baggage
A nice surprise, isn’t it? The common thread between these deductions is clear, though. That is, you need to track meticulously what you’re spending and explicitly note when it’s for business.
In other words, you can’t just deduct your week-long Bali vacation and expect the IRS to be cool with it.
6. The Meal’s on Us!
Wining and dining customers and clients is common practice, but it can also get a bit pricey.
Well, lucky for you there’s a deduction to help keep costs down.
As of October 2018, 50% of meal costs when dining with clients and customers can be written off.
That doesn’t mean you should go insane and order caviar to “wow” anyone, of course.
As with the other deductions noted above, you need to keep receipts to make a distinction between personal and professional meals.
7. Grow Your Skills to Pay the Bills
Ongoing training is common practice for many service business owners looking to score more certifications and grow their client bases.
Consider how any training, courses or workshops that increase your work efficiency are eligible for what is called work-related education expenses.
Like software deductions, these are relatively easy to prove. Just don’t try to convince the IRS that the online kung-fu course you took is helping you with your coaching clients.
8. Getting Paid to Promote Yourself
Spoiler alert: small businesses need to promote themselves to grow.
Advertising costs. Marketing materials. Expenses related to promotion can stack up quite quickly, can’t they?
Well, that’s exactly why they’re deductible. Whether you’re dealing with physical signage or digital ads (think: Facebook or an email marketing software), either are a-okay.
9. Financial Help for Hiring a Professional
Small business owners are go-getters.
We want to do everything ourselves.
However, sometimes we could use a bit of help from our professional friends.
If you hire someone to help your business either for the sake of organization or fixing something that went wrong, they can also help you during tax time.
It’s a win-win, isn’t it?
10. Keep Yourself and Your Bank Account Healthy
There are no two ways about it: healthcare is crazy complicated in this country.
But want to hear something simple?
You can deduct the cost of buying a health insurance premium. This is true for both yourself and your partner.
All you need to qualify is to own a business and show a profit for the calendar year you’re claiming your healthcare deduction.
And with that, we wrap up our crash course on how to save some serious money during tax time!
Ready to Trim Down Your Small Business Taxes?
Listen: most small business owners are naturally thrifty.
We’re inclined to keep costs down and save anywhere and everywhere we possibly can, right?
And so in our quest to be the best boss we can be, scoring savings through deductions is a must-do.
By knowing what deductions are on the table and how to qualify for them, you can keep more money in your pocket and focus on what matters most.
That is, getting down to business.