The government’s definition of a small business is one with up to 1,000 employees and sales of $7 million to $25 million per year, but there are also many tax breaks for much smaller organizations. If you are running one or you are planning to, you might want to consider Uncle Sam as one of your new best friends – there are a lot of things that he will be very helpful with. Don’t try to cheat the IRS because that will backfire sooner or later, but also, don’t cheat yourself. Be well informed – there are many benefits for people like you. Read on to find out what tax breaks you should always have in mind.
1. Home office
If your office is in your house, calculate how much space it uses up and divide it by the square footage of your entire home. That percentage is the fraction of your home-related business expenses (mortgage, electricity, rent, insurance, etc.) that is deductable, but be careful: just because your laptop is in the living room (along with the TV, the home computer and the dining table) doesn’t mean that the whole room can be considered your office. Be sincere to yourself, and, more importantly, to the IRS. When claiming your tax deduction, only consider the space you actually use for work (and absolutely nothing but work), and there should be no problems with them even if they come knocking on your door.
2. Car maintenance and mileage
If you use your car for work, you can get some of your gas and repairs money back. There are two ways to calculate the deduction: standard mileage rate and actual expenses. Here you can read all about them and you can actually use the one that suits you best. One more thing: if your office is at your home, you will count your mileage from the moment you pull out of the driveway until the moment you get back home (as long as the trip was work-related and not a family dinner or a get-together with friends). If, on the other hand, you work away from home, you only count the miles from your first business destination to the last one. It may be a good idea, in this case, to schedule several meetings on the same day in order to get a better tax return.
3. Telephone bills
The same thing that goes for cars, applies to phone calls as well. If you use your phone for business calls, circle the numbers that were business-related on your phone bill at the end of the month, and deduct all of them at the end of the year, 100 percent. In case you have a second line in your house that is dedicated only to business, you can deduct all of those costs. If you, like most people nowadays, only use your cell phone, you can also claim the portion of business calls you made and deduct it.
This is a really nice one! If you have to travel for your work, go ahead and stay at a nice hotel – the entire cost is tax deductible. You can also take a plane, use dry-cleaning, Wi-Fi and taxi services. Pretty much anything you need while you are away from home – don’t hesitate to spend because you can get it back. So while you have to work in another town, you have a chance to get really comfortable and get all your money back eventually. The only exception is eating out: you can deduct only 50 percent of these costs (but that is still something).
5. Meals and gifts
If you are having a business partner over for dinner to negotiate the new case, you can deduct half the expenses, so why not cook something special? This also goes for taking them to a show or for drinks after a meeting, as well as any other entertainment expenses. As long as it is for the purpose of your business, you can get half the money back. The only condition is that the “entertainment” takes place before or after a business meeting. And if you want to buy your client, partner or employee a gift of appreciation, go for it. Especially since, guess what, you can get it deducted – 100 percent of it. And you can spend up to $25 per person per year.
Just like any other bigger company, the small business you run or are planning to start needs business cards, print ads, promotional activities or maybe even television and radio commercials. This is all deductible as a current expense. Keep in mind that good marketing will get you far, so don’t save on this. It will pay off, and not only through tax deductions. Another thing you can do to advertise yourself is sponsor a local sports team or find another way to make good publicity. These promotions are also deductable, as long as there is a clear connection between your business and the sponsorship (like naming the team after your company).
7. Office supplies and furniture
Keep the receipts of all the paper, pens, staples, and anything else you might need for your office – this is all tax deductable. Also, take the time and money to equip your workspace with the furniture that will make it more appealing. When it comes to furniture, you can either deduct all the costs in one year or deduct a part of it over seven years. This process is called depreciation, and keep in mind that if you decide to go with this option, you can’t simply split your costs equally through the years, but you need to use an IRS chart and make individual calculations every year. Decide which option is better for your business and go for it.