As an entrepreneur, you and everyone else have to pay your fair share of taxes. Whether you’re self-employed or running a business, filing your tax returns on time and accurately can be a dreadful task. On top of that, having a tight schedule for keeping your business afloat can often lead to missing out on some critical tax deductions apart from the standard deductibles.
Here are 5 tax write-offs you should never assume, which are a great boost to your bottom line.
1. Personal Vehicle Expenses
The personal car you drive to and from one business meeting accumulates business mileage due for a deduction. It’s also easy to keep a record using mileage tracking app if doing it manually is cumbersome. The IRS updates the mileage reimbursement rate yearly report, in which you multiply your mileage by the reimbursement rate to get the mileage deduction.
Let’s say in 2021, you drive 10,000 miles for business purposes, and the current IRS reimbursement rate is 56 cents per mile. The deduction you will claim is 10,000 x 0.56, which is $5,600 in tax savings.
2. Home Office Deduction
If you’re self-employed and working from home, you’re allowed to deduct home office expenses. Just like a normal corporate office location, you may be spending on expenses in your home office to make profits. These are housing costs such as utilities, property insurance, rent, and other expenses which you should keep a regular record. Just be sure your home office meets the criteria for regular and exclusive use and is your principal place of business.
To figure out how much to deduct, use the simplified home office deduction method in which you take a $5 standard deduction per square foot of your home office.
Another option that can be complicated is the standard method, where you determine your total residence expenses against your actual business expenditures. You must fill Form 8829 with this method to claim the normal home office deduction you file with your annual tax return.
3. Cell Phone Expenses for Business Calls
As a business owner, your cell plays a big part in running your operations. This is from making calls to clients to checking and replying to emails. In no time, this adds up to your cell phone bill, which, fortunately you can write off, but just the deductible portion. However, many self-employed people and small business owners easily dismiss the deduction as they usually get a single bill for both personal and business use.
All you need is to track your business use percentage of your monthly phone bill as proof to the IRS.
4. Travel and Entertainment Costs
Another underutilized write-off is business-related travel costs. According to the IRS, deductible travel expenses include travel by plane, taxi, or bus, hotel lodging and meals, parking and toll fees, tips, dry-cleaning, and any other ordinary expenses linked to business travel.
Aside from travel costs, sometimes you may entertain your clients or discuss business with a partner or supplier while having a meal. In general, you’re limited to a 50% deduction of qualifying food and beverage costs. Make sure you always maintain proper and accurate documentation to claim this deduction.
5. Education Costs
Running a business involves many nuances that help to solidify your brand, including investing in education. The good thing is you can write off 100% of your education costs to upscale your skills and add value to your business.
This involves workshops, training, online classes, industry-related books, seminars, and webinars. It’s important to note, the deductible is disqualified if you’re pursuing a whole other career or the costs are intended for purposes other than your business.
The Takeaway
The first key step is to always have a keen eye on all the tax deductions you’re entitled to and have good records. Otherwise, you’ll end up with a huge tax liability which can hurt the survival of your business. Also, the IRS is always making changes and every business is different based on their industry and filing status. This can impact the deduction allowances offered. It is always best practice to check with your CPA for your specific qualifications.
As a premium bookkeeping service provider, we will help your business have a system in place to ensure you can manage your record keeping to claim all tax deductions and tax filing like clockwork. Please get in touch today to get started.