More Common Small Business Tax Deductions
5: Start-up Costs
One extremely useful (and thus common) small business deduction is the cost of starting up the business itself. While it may seem too good to be true, the IRS really does let you deduct business expenses before it's really even much of a business.
OK, that is a little too good to be true. You can only start deducting the year the business is launched. You can't just keep logging "start-up costs" for the 15 years since you thought of that idea for the pencil that stands on its tip — which probably isn't much of a "business" in itself, anyway.
The point is this: Start-up costs are almost unbelievably broad. You can write off dinner with a potential client. You can write off going to that "How to Start a Business That Revolves Around a Pencil" course. You can certainly write off the cost of those business cards you optimistically printed (your title: "Pencil Pusher," obviously). What you can't do is go over a $5,000 deduction. That's the limit on writing off start-up costs [source: Newmarker].
4: Advertising and Marketing
Advertising and marketing budgets usually aren't gigantic for small businesses. So it comes as no surprise to learn that writing off advertising and marketing is a common deduction for small employers — and a welcome one.
A lot of the expenses are pretty predictable. If you're paying for an ad in the local paper, you can write it off. Say the company is printing out fliers to promote a big sale around town. Deduction. But others are even cooler. Let's say your company agrees to sponsor one of the roller derby teams in town. You can write off the cost of the branded T-shirts, helmets and skates you buy for them.
3: Section 179
Nothing warms the cockles of the small business owner's heart like the mention of Section 179. Voted "Most Magical IRS Code" (by me — and there wasn't much competition), it's designed to help business owners write off the cost of business equipment. And not the regular boring way, which says you have to depreciate the item over the course of several years, taking a fraction of the cost until it's all used up.
No, ma'am, with Section 179, you can write off the entire cost of new equipment that year. If you buy, say, a $20,000 piece of machinery, that's no small potatoes. Instead of taking off $1,000 each year for 20 years, you just write it off the year you buy it. Now, it used to be that you could do this up to a whopping $500,000 limit. Not so much in the 2014 tax year, which has a limit of $25,000 [source: Fishman]. Still, $25,000 is still a lot of magic. But be warned that — of course — there are rules and restrictions. Best make sure you qualify before you go writing off Section 179 deductions.
2: Travel Expenses
We talked a little bit about travel expenses as they related to employees, but it's worth pointing out that travel expenses — in general — are a terrific way for small businesses to recoup some tax liability. If you have to make any kind of trip for work, don't be shy about keeping track of all the costs that go along with it. That means food, travel, lodging — even baggage or shipping fees.
It's also important to remember that unlike that pesky home office deduction, you don't have to limit your travel solely to business for a write-off. Sure, the IRS is not going to deduct the cost of your entire trip to Disneyland if you went to LA for a single meeting, but you can certainly write off the business-related expenses you incurred from the trip. Just don't try to deduct the cost of spending five days buying churros at the Happiest Place on Earth.
1: Employee Pay
And back to our robot workers, who so far do not require personal interaction, vacation time or health benefits. One more thing that would make them even more appealing? Being willing to work for free. But here's the thing: Even if it was possible to hire such robots, it might not be necessary. Because guess what huge expense small business owners can write off? Employee salary or wages.
Employee pay is a deductible expense, and you'd have to be pretty bad with money to overlook it when filing small business taxes. As long as you're paying a reasonable salary for the services you ask of your employees, their income is not just their gain — it's yours as well [source: IRS 535].
For a lot more information about small business or income taxes, read on to the next page.
Author's Note: 10 Common Small Business Tax Deductions
There really is a load of small business deductions to consider when doing your taxes. While these are the most common, this is by no means a definitive list. Check with a tax preparer or accountant for more tips that apply to your business, or read up on the IRS website.
- Dratch, Dana. "A Dozen Deductions for Your Small Business." Bankrate. March 14, 2014. (Nov. 10, 2014) http://www.bankrate.com/finance/money-guides/a-dozen-deductions-for-your-small-business-1.aspx
- Fishman, Stephen. "Top Tax Deductions for Your Small Business." Nolo. 2014. (Nov. 10, 2014) http://www.nolo.com/legal-encyclopedia/top-tax-deductions-small-business-30176.html
- Internal Revenue Service (IRS). "Deducting Business Expenses." Sept. 19, 2014. (Nov. 10, 2014) http://www.irs.gov/publications/p535/ch02.html#en_US_2013_publink1000208661
- Internal Revenue Service (IRS). "Home Office Deduction." Oct. 1, 2014. (Nov. 10, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction
- Internal Revenue Service (IRS). "Publication 334." 2013. (Nov. 10, 2014) http://www.irs.gov/publications/p334/ch08.html#en_US_2013_publink1000313533
- Internal Revenue Service (IRS). "Publication 535." 2013. (Nov. 10, 2014) http://www.irs.gov/publications/p535/ch02.html#en_US_2013_publink1000208661
- Kiplinger. "Business Expense Tax Deductions." Jan. 2011. (Nov. 10, 2014) http://www.kiplinger.com/article/business/T054-C000-S001-business-expense-tax-deductions.html#u
- Newmarker, Chris. "Don't Overpay Your Taxes." Entrepreneur. Feb. 19, 2014. (Nov. 10, 2014) http://www.entrepreneur.com/article/231128
Many Americans don't think about their tax bills until the new year. But there are things you need to do before Dec. 31 if you want to pay less later.