Here's the good news: There are many tax deductions you can (and should) take if you're looking for small business savings come April. The (not really that bad) bad news? We mean it when we say "many." Which is great, in most ways — if there's an expense you need help offsetting, there's probably some sort of deduction for it. But it can be intimidating to wade through what's available — and what's most useful.
So, we'll keep it simple by offering 10 of the most common deductions that small business owners would want to take. Nothing too fancy, just the breaks that will most likely apply to at least one situation you're in. First up? That car you're driving.
10: Car Expenses
Every small business that owns vehicles to get the job done should absolutely be taking advantage of the auto expense write-off the IRS provides. There are a couple of different ways to take advantage of the deduction, so you'll want to make sure you're choosing the one that's most worth your while.
First up is the standard mileage deduction, which simply allows you to claim 56 cents per business mile driven [source: Fishman]. (Keep in mind that any tolls or parking fees — not tickets, but nice try — can also be included.) If you're willing to put more time into it, consider seeing if the actual expense deduction isn't better for your vehicle. You have to keep careful track (that means records and receipts) of the actual expenses you accrue, but that can include a whole lot: tune-ups, car washes, the whole shebang [source: Newmarker]. You can also depreciate the cost of the vehicle if it's used solely for business by deducting a portion of its value over the course of its useful life.
9: Home Office Deduction
Ah, no small business article would be complete without trying to find some way to shoehorn a home office deduction onto your return. But although a lot of tax articles might overstate their case a little bit, convincing you the home office deduction can help your tax return, world hunger and the common cold, it really does make sense for a small business.
For one, you shouldn't hesitate to take the deduction if you really do have a dedicated space for your business at home. (Just be mindful of the rules around claiming a home office.) It's a great way to get a deduction on your workspace, and the IRS has made it even easier by offering a simplified method for claiming it. And while the simple method is great — it involves multiplying your square footage times a dollar amount to get the deduction — you might want to consider the traditional method if you're working in a larger area. With the traditional method, you can also write off a percentage of some home utilities and expenses, which might be worth it.
8: Employee Expenses
Those pesky employees you have to hire to actually do the work in the office can be a pain, no doubt about it. But before you start plunking search terms like "robot workers with no personality or knowledge of vacation" into your web browser, you should remember that a lot of the money you spend on employees can be written off on your tax return.
For instance, say you're paying for employees to travel to another city for work. You can write off the cost, just like they would be able to write off unreimbursed business expenses on their own tax returns. You're allowed to write off the cost of any expenses you pay for your employees to get the job done, in fact. Of course, employees must keep careful record of their expenses, and the business needs to have a plan in place for how to account for employee reimbursement. Don't expect the IRS to blindly believe you, in other words, if you're trying to claim employee costs.
7: Employee Benefits
Add this to that wish list of robot worker traits: an army of droids that never get the flu or break an arm. Because paying for employee health benefits can be a substantial cost for small business owners, it's no surprise that deducting the costs of employee health benefits — including premiums — is a very common small business write-off.
And while health care and medical insurance are some of the biggest costs to employers, you can offer other fringe benefits to employees that also are deductible. If you provide a plan for assisting employees with adoption or provide a group life insurance plan, you can write off the costs. Even something like an educational assistance program — where you might give employees financial help going back to school — can be written off [source: IRS 334].
If anything, there might be a part of you that is super envious that your small business tax return looks so much better than an individual tax return. While small business owners no doubt have a headache or two (what, is it challenging trying to keep a small business sustainable year after year?), it is pretty sweet that their tax deductions include the entirety of the office electric bill.
Any utilities you pay for an office space are deductible, including water, sewer, gas and electricity. Shucks, you think (strangely speaking like a kid on a 1950s TV show): I don't have a separate building for work and instead use a dedicated home office space. You're in luck, 50s kid! You can also write off the cost of utilities that apply to your home office space, as long as you take that traditional method of deducting the space that we talked about earlier. If 20 percent of your home is used as a home office, you can deduct 20 percent off that heating bill.