Business Tax Deductions You Won’t Want to Miss

Hopefully, you’ve gotten all your tax information to your tax professional already. If you have, consider this a quick checklist to make sure you didn’t miss any tax-saving opportunities. 

For most of us, taxes consume more of our income than any other expense. Lots of wonderful things get paid for with those tax dollars, but none of us want to pay more. Below is a list of the most common business tax deductions that you will not want to miss. 

Business Meals – These are mostly subject to a 50% limitation. If meals were purchased at an entertainment venue, the food portion must be separately stated. The entertainment portion is not deductible. Meals at employee social events, holiday parties, and team building events are 100% deductible – track those separately.  For 2021 and 2022 tax years, the COVID-19 Relief Bill made meals provided by a restaurant 100% deductible if they have a business purpose. 

Business Insurance costs of all types are 100% deductible. Note – Insurance purchased by the business for key employees is not deductible by the business. There are some tricky rules related to key man life insurance so talk with your tax pro before buying any. 

Business Interest – If paid on valid business purchases is deductible subject to Adjusted Gross Income limitations. 

Advertising & Marketing expenses, as long as considered ordinary, reasonable, and necessary are deductible. Though you can deduct the costs of advertising put on your car, the advertising does not make your mileage deductible!

Business Mileage – Speaking of mileage, you can deduct the cost of business transportation by taking actual costs or the IRS mileage rate. The big catch is – You’ll need a mileage log showing the business purpose of every trip to preserve the deduction if the IRS comes calling. Some great apps can help you automatically keep a mileage log – check out MileIQ, SherpaShare, TripLog, Hurdlr, and Everlance. QuickBooks also has a tracker built into their app. Note – Commuting miles are not deductible!

Education – Educational expenses that add value to the business and increase the workforce’s skills are tax-deductible. Courses required to meet the minimum education requirements in a field and courses that qualify workers for a different trade are not deductible. 

Business Assets – If you have purchased business assets that have a useful life of over a year, you must capitalize the expense and take the depreciation expense over the useful life of the asset. There are accelerated depreciation options available, so ask your tax pro about those. Also, ask them about the de minimis safe harbor election that will keep you from capitalizing lots of small purchases. 

Legal Fees – As long as they are for business purposes. Legal fees paid by the business for personal issues are not deductible. 

Travel Expenses – The IRS says business travel is travel away from your tax home that is substantially longer than a day’s work that requires you to sleep or rest while away from home. Your tax home is your regular place of business and includes the entire city or general area of that place. Most of the IRS rules are geared towards not allowing deductions for commuting. The IRS feels strongly that going from your residence to your place of work is not deductible, so determining your “tax home” is key. Business meals while traveling are still subject to limitations. You can’t make a personal trip deductible by doing a little business while you are away. The primary purpose of the trip must be business. 

Retirement Plans – Establishing and maximizing contributions to retirement savings plans are always a great way to defer taxes. Remember, this is a tax deferral strategy. Use it only if you assume you will be in a lower tax bracket when you retire and use the income. If that is not your assumption, consider Roth retirement plans where you pay the taxes now. 

Home Office Expenses – A home office will allow you to deduct expenses related to the operation of your home office and may qualify as your “tax home” making mileage deductible that would have been considered a non-deductible commute. A home office must be used exclusively and regularly for your business. There are lots of rules for this deduction. Check with your tax professional to make sure the tax benefit outweighs the cost of record-keeping and filing.  

Charitable Donations – C-Corporations are taxed as separate entities and can deduct charitable contributions on its tax return. S-Corps, Partnerships, and Sole Proprietors pass the charitable contribution through to their owners who can deduct the contributions as an itemized deduction. For these entities, deductibility is determined at the individual level. If you are expecting charitable contributions to be deductible make sure you check at the individual/owner level. 

Office supplies, startup expenses, bad business debt, phone/internet, business casualty losses, salaries, rent, and investment interest are all expenses you can deduct and should report to your tax pro. 

We couldn’t cover everything in this article, but I hope this gives you some great ideas to discuss with your tax advisor.

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