When starting a new business, the focus is on the product or service you will offer, how you will offer it, and getting the money rolling in! What may not come to mind is taxes. You may also not consider what tax deductions you will be eligible for. As you build your business, be sure to keep track of your business expenses.
What are business expenses?
Business expenses are the costs incurred to run your business.
By keeping track of your expenses, you can use this information for tax deductions. The IRS states to be deductible: the expense must be ordinary and necessary.
What we find to be necessary may be different from the IRS’s version of “necessary”. Kind of vague – isn’t it? They go on further to say ”An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.”
With all of the businesses the IRS deals with, how will they know about your expenses and determine if they are ordinary and necessary?
When you file your tax return, you enter a NACIS code, identifying what type of business you are. The IRS then has specific items that they expect to see. If you submit different expenses or expenses that are higher than they expect, you will be flagged. This does not guarantee that you will be audited, but it does increase the chances. It really doesn’t matter how clean you are, no one wants an audit. They are stressful, time intensive and can be expensive.
When you can deduct business expenses depends on several factors: whether you are an accrual or cash basis taxpayer, what type of business you are, if related parties are involved, when the item was placed into service and so on. This can get confusing if you aren’t sure which factors and situations apply specifically to your business. We recommend you reach out to your accountant if you ever have any questions.
We want to make sure you don’t miss the following 6 deductions you may be eligible for. We find that many new business owners aren’t aware of these deductions and our goal is to always save you as much money as possible!
Enough chit chat, let’s get on to the deductions you shouldn’t miss!
Tax Deductions You Shouldn’t Miss
Commissions – Compensation paid to non-employees that aided in the completion of a sale.
For example: A banker receives a commission for referring a client to a mortgage broker for the purchase of a new home.
Repairs & Maintenance – The cost to maintain an asset. R&M can be a little tricky; it is important that you are maintaining and not extending the life of the asset.
For example: Oil changes or brake replacement on a vehicle is maintaining the asset. If you have to get a new engine, you are extending the life.
Utilities – Water, gas, electric and etc to run your business locations. If you have a home office, utilities will be handled on Form 8829.
Training & Education – Improving your knowledge and/or skill set for the purpose of the business’s success.
For example: Online seminar for new technology or continuing education to maintain your license.
Dues & Subscriptions– Membership to professional organizations. Please note that Country Club dues, even if used for business networking, are a non-deductible expense.
For example: Chamber of Commerce annual membership dues, Networking group quarterly dues.
Gifts – tokens of appreciation may be given to your employees, clients, vendors, etc., but with a maximum write off of $25 each.
For example: $25 ham for the holidays.
We know that starting a new business takes a village. From the support of friends and family to professionals who guide you along the way, it can seem unreal. If you want to express your appreciation with a gift, please note that the maximum write-off is just $25.
We wish you continued success in your business for years to come! If you need a CPA to talk with, Accountabilities is open all year round and we are happy to help!