Filing taxes, for most people, is confusing and intimidating at best. But for small business owners, the process is akin to a lobotomy.
Most mom-and-pop business owners are aware of the common deductions for small businesses, such as office supplies and technology, and business conferences. But with the U.S. tax code as thick as Anna Karenina and continually changing, it’s easy to miss a few tax write-offs.
Read on for the most common, overlooked tax deductions for small businesses: (For more, see: How Can I Tell Which of My Business Expenses Count as Write-Offs?)
A good example of bad debt: When you create content for someone's website and then they don't pay you. You can deduct that money. While it's not as satisfying as earning the revenue, deducting it should soften the blow when you realize your client is a deadbeat. The only stipulation is that you can only deduct that amount if you’ve already paid taxes on it; if you used that amount in your quarterly tax estimates and never got paid, you’re free to deduct it.
The price of gas is nice and low right now and the Internal Revenue Service has not lowered its reimbursement rates. If you’re using your vehicle for business, the standard mileage rate is $0.56 a mile. Keep a small notebook in your car and track how much you drive every time you drive. Just note your car’s starting and ending mileage to keep it easier — or write down where you go so you can map it later. (For more, see: What Are the Benefits of Prorating Expenses?)
Many people remember to deduct the rent portion of a home office, but they tend to forget about utilities. Everything from electric, gas, internet and even repairs can be deducted from your taxes, but you can only deduct a proportion of the amount that you use. Deductions are based on the percentage of your home that you use for work. For example, if your workspace takes up 15% of your house, you can deduct 15% of your bills.
Since many people are switching from a landline and a cell to using just one phone, it’s easy to forget that you use your phone for both business and personal calls. You can deduct a part of your cell phone, proportional to how often you use it for business. Since this is another monthly bill like your utilities, the amount of deductions you’re missing out on could be huge. (For more, see: The Pros and Cons of Working From Home.)
If you pay for your own health insurance, you’re about to reap what you sow. You can deduct your health insurance premium from your adjusted gross income. There are several qualifications you have to meet to be able to deduct this, so make sure to read the IRS website carefully.
If you’re self-employed and contributing to an Simplified Employee Pension, you may be able to deduct a portion of those contributions. Even though you don’t have the matching contributions you’d get from a corporate 401(k), you’re still getting an incentive to save for retirement.
The Bottom Line
AccountLancer founder Eric J. Nisall says that if you’re overlooking tax deductions, then you have no business filing your own taxes. “There is no such thing as an overlooked tax deduction to an experienced tax preparer,” he said, noting that if you do your research and use professional software, you should be able to find most of the deductions you’re eligible for. “I know a lot of people are dead set against paying for things that they can do themselves, but when it comes to something as big as taxes, it’s honestly irresponsible. The amount of time that it takes people to research every little thing? They could have spent that time doing what generates income and probably pay for the professional tax preparation several times over.” (For more, see: Is a Simplified Employee Pension IRA Tax Deductible?)