Numerous deductions can help small business owners save money when paying taxes, yet despite the benefits, many business owners leave hundreds or even thousands of dollars on the table. Here are ten of the most overlooked small business tax deductions.
1. Home office deduction
Business owners with a room within their house dedicated as a working space can deduct a percentage of their rent or mortgage each year. This percentage is equal to the percentage of the home taken up by the office; if a room is 10 percent of a home, business owners can deduct 10 percent of their monthly mortgage payment. There are two primary conditions that must be satisfied before a home office becomes a legal deduction; this information can be found in the IRS Publication 587.
2. Employee expenses
If your business covers expenses such as meals, gas, hotel stays and more, these expenses can be deducted. However, the business must be able to provide an 'accountable plan' that demonstrates the expenses were business related.
While inventory is normally deducted using an accrual method, certain types of small businesses are able to treat their inventory as business supplies, which then makes inventory immediately deductible. Only certain businesses are eligible for this type of deduction; refer to Rev. Proc. 2002-28 for more information.
4. Interest payments
Most small business owners do not realize interest payments are deductible. Since many small businesses are funded through credit cards, the interest payments can serve as a deductible business expense.
5. Bank fees
Any charges on behalf of the bank, such as checking accounts or ATM fees, are deductible as a business expense.
6. Self-employment taxes
Since small business owners are responsible for paying their own social security and Medicare taxes, one-half of the taxes paid into these are deductible as a personal expense.
7. Startup costs
In the first year of business, you can deduct up to $5,000 in startup costs; if the costs exceed this amount, they can be amortized over a period of 15 years
8. Accounting fees
If you hire a professional to take care of your taxes, your expense is deductible from your overall amount paid. This amount is deductible two years later; i.e., what you paid in 2014 to have your taxes prepared will be deductible in 2016.
9. Unpaid debt
If you've loaned money to an employee or vendor and haven't been repaid, that amount is deductible as a loss. However, the way the loan is treated determines whether it is a bad-business or non-business expense.
10. Health insurance premiums
As a small business owner, you can deduct health insurance premiums paid on yourself, your spouse and any dependents under 27 as a personal expense.
We hope you find these tax tips helpful in your business. Be sure to check out 5-tips to help your small business avoid a tax audit. Also, if you have not checked your business credit report yet this year, be sure to visit smartbusinessreports.com.