Does your stomach drop when you hear the word taxes? If so, you are not alone. Business owners all over the US have experienced anxiety often induced by tax time. However, with preparation and insight on helpful deductions, tax season can actually come and go in a breeze. (Yes, it’s possible!) Below are our top 9 ways small business owners can capitalize on tax savings:
1. Deduct Self-Employment Tax
Running your own business has some huge benefits, as we’re sure you’ve realized. However, when you’re self-employed, you don’t have an employer to share the cost of Social Security or Medicare taxes.
So regarding these extra costs, the IRS allows for a deduction of 50% of your self-employment tax as compensation. Be sure to take advantage of this allowance when filing your taxes.
The IRS allows you to deduct 50% of your self-employment tax.
2. Capitalize on Vehicle Expense Deductions
Do you use your personal vehicle for business purposes? If so, you likely qualify for a significant deduction. The IRS Publication 463 gives specifics on how to track your business, commuting and personal miles.
By tracking your miles and the business purposes, you can deduct your business auto expenses at a standard mileage rate. (This rate varies year-to-year, and is currently 56 cents per mile in 2021.)
You can deduct 56 cents per mile for business-related car travel.
Another option is to deduct the actual expenses of driving your vehicle for business. With this route, you must track mileage as well as gas, oil and service expenses. Additionally, you want to track any interest on a vehicle loan, depreciation, lease payments, and insurance costs. This may be a better option for vehicles you only use for work purposes.
Either route, by tracking your mileage, you can have large tax deductions.
3. Implement Accountable Plans for Employee Reimbursement
Reimbursement can be costly if reported as employee income. If your company reimburses its employees for travel, lodging, tools, etc., you may want to look into an accountable plan. These accountable plans handle reimbursements according to IRS Publication 463 requirements.
Accountable plans allow businesses to deduct employee expenses without reporting reimbursements as employee income.
Accountable plans allow businesses to deduct employee expenses without reporting reimbursements as employee income. This tracking method opens the door to potential employment tax savings.
4. Consider Deducting Business Insurance Expenses
Using IRS form 1040 for deductions, you can opt to deduct your yearly business insurance expenses. Liability insurance, worker’s compensation, commercial auto and business interruption service insurance are a few of the deductible coverage costs. Again, by carefully tracking your expenses, you can save with tax deductions.
5. Deduct Phone and Internet Service Fees
Small business communication services can be costly. But by staying organized, you can save your business thousands in deductions. You can deduct internet fees, malware defense, phone service, and services that keep your computers running efficiently.
By staying organized, you can save your business thousands in deductions.
So look into your communication expenses. For example with phone service – if you use a separate phone strictly for business use, you can take a full deduction. If you use a personal phone, keep an itemized monthly bill, then separate and deduct business expenses.
Especially with our world pivoting to subscriptions from Netflix to malware, take a close look & analyze for deductions.
6. Work from Home
Having a home office has more advantages than working in sweatpants – although that’s nice too. After sitting on countless Zoom calls, we all have a new appreciation for remote work.
When working from home, you can deduct housing expenses like they are office expenses. These are available to renters and homeowners alike. In addition to communication fees mentioned above, you can also deduct utility, equipment, space, security and other miscellaneous costs.
When working from home, you can deduct housing expenses like they are office expenses.
If you have a dedicated office space, deductions are based on the percentage of your home devoted to business use. So, if your office takes up 15% of your home, you can deduct 15% or your monthly rent/mortgage, electricity, gas, security system, etc. The IRS offers resources to get you started on Home Office Deductions here.
7. Deduct Lunch Meetings
This might be one of our favorite tax breaks.
If you have business lunches, you can deduct up to 50% of meal costs (so long as the meal prices are reasonable). Maybe skip the surf ‘n’ turf, but this is great news! These deductions can really add up when you reach the end of the year. Especially if you take employees or clients out to meetings, this is a great deduction to know about.
When talking business meals, you can deduct up to 50% of meal costs.
Now you can feel good & treat your employees to lunch to celebrate or after a difficult week.
8. Budget Your Frequent Flyer Points
When traveling for business, you can rack up airline miles pretty quickly. While it can be tempting to use these points for business flights, budget your points for personal travel costs. You have no tax break for personal travel costs, but business travel costs are fully deductible as business expenses.
Business travel costs are fully deductible as business expenses.
By utilizing your miles for personal savings, you’re also capitalizing on overall savings for business trips. With this method you’ll have a greater amount of annual savings.
9. Deduct 100% of Equipment Purchases
Why deduct small amounts year-by-year and watch your deductions shrink as your equipment depreciates when you can deduct up to $1,000,000 of the total cost at once? Or a maximum cap on equipment purchase of $2,590,000?
Section 179 allows business owners to purchase & use equipment while deducting the total equipment cost, before the item depreciates. Business owners across the country choose to capitalize on Section 179 and save thousands in taxes when they do so!
Section 179 allows business owners to purchase & use equipment while deducting the total equipment cost.
This is a great tool, especially if you’re in need of extra equipment and you have excess end of year cash reserves. If this sounds like you, read our quick guide on Section 179 and how your business can benefit.