Tax season is upon us. Unfortunately, It’s a time that brings many business owners stress.
The good news?
It doesn’t have to be a traumatic experience is you learn how to properly prepare, having all your affairs in order. For starters, it’s good to be aware of all the possible deductions for your business. That way, you file all the appropriate documentation to help your business grow and not pay more than you should in taxes. In fact, the IRS encourages this.
There’s a wealth of business tax deductions that you may not be aware of. Some may seem unusual, but they’re legitimate. Remember, you should always consult with a tax professional before filing your taxes.
Here are 22 little-known tax deductions that you may be able to write off:
Business Tax Deduction 1: Health Insurance Premiums
If you are a small business owner and you incur medical or dental expenses that amount to more than 10% of your Adjusted Gross Income (AGI), the IRS lets you write it off for that particular tax year. What’s more, if you and/or your spouse are older than 65 years, health-related expenses that exceed 7.5% of your AGI are all tax deductible.
2. Employee Education and Training
The growth of your business hinges on continuous training and education for your employees to expand their skillset. If you or your employees attend a conference, training program or even a networking event, you can list this as a deductible expense when you’re filing your tax returns.
It’ll not only go a long way in reducing your business taxes, but you’ll find it a lot easier to justify the expenses you’ll incur when you’re on the fence about whether or not you should invest in it. Going back to school pays off!
3. Personal 401(K)
Before starting your own small business, did you work for a major employer? If you did, then listen up. The company you worked for most likely wrote off the employee 401(k) portion of your contributions.
If you applied for a personal 401(k), you can rip the same benefits through your small business. All you have to do is set up a personal 401(k) account and set aside 25% of your net income every month. The IRS only imposes a tax on amounts above $53,000 per annum.
4. Bad Debt
Dealing with non-paying clients is every small business owner’s worst nightmare. You put your best foot forward only for your customer to evade paying you what they owe. Like it or not, bad debt is an inevitable risk of doing business and the IRS acknowledges this fact as well.
It allows you to write off bad debt in your federal tax return. If you had previously reported an amount that a client owed but failed to pay, you can claim that deduction provided it happened in the year prior.
5. Banking Fees
As a business owner, did you know that any fees you’re charged for banking transactions are deductible? That’s right. If you incurred fees to open your bank account or even those pesky ATM charges every time you make a withdrawal, you can claim a deduction from the IRS. Although, there are banks such as Navy Federal, USAA and Capital One and that refund ATM charges with certain types of accounts.
6. Credit Card Fees
If your business accepts credit card payments from your customers, those transaction processing fees can rack up and eat into your profits. You can reduce the burden this has on your business by deducting those transaction fees in your tax return. What’s more, you can write off any business expenses related to business credit cards like annual renewal fees and late payment penalties.
7. Collection Expenses
In some instances, when a customer owes your business money, you may be forced to enlist the services of a debt collection agency to help you recover the amount due. Usually, you have to pay these agencies to do the dirty work for you. While, it’s never a fun experience to have to result to this, the silver lining is that the IRS lets you write off all expenses associated with the collection and settlement of debts.
8. Business Loan Amortization
As a small business owner, know how financially draining the whole process can be. More often than not, it forces you to take out multiple business loans to keep things going.
The IRS eases that burden by allowing you to amortize the costs of startup over a 15-year period. This provides a better alternative that deducting large business loans all in the same year. A tax attorney can help you figure out if your business can benefit from this write-off.
9. Loan Interest
You’ll be happy to learn that any interest you may accrue in a financial year that’s related to your business is deductible. The keyword here is “related to your business”. For instance, if you have a car that you use for both business and personal purposes, you have to calculate the percentage of interest in relation to the amount of time the vehicle was used for business-related activities.
10. Newspaper and Magazine Subscriptions
You probably weren’t aware that newspaper and magazine subscriptions are tax deductible. Provided that you can justify their purpose, you can write off their costs.
11. Office Supplies
Procuring toner and ink cartridges for your printer, staples and paper clips to hold your documents together and any other tangible office supplies that are related to your business, are all tax deductible. Intangible expenses like having a professional maintain your company website and paying for web hosting services can also be written off as a deductible expense when you file your tax returns.
12. Homeowner’s Insurance and HOA Fees
If you run your business from home you may not be able to completely write off homeowner’s insurance. However, you can calculate the floor space your home office occupies, relative to the rest of the house and write off the equivalent percentage of the homeowner’s insurance costs.
What’s more, if your home is in an area that has a neighborhood association, you can deduct some of these fees from your tax return. It may not amount to much but in the end it all adds up to a substantial saving.
13. Janitorial Services
When you hire someone to clean the premises where you do business, you can write off the costs associated with the cleaning service. If you run your small business from home and prefer to do the cleaning yourself, you can deduct the cost of the cleaning supplies you used.
14. Maintenance and Repairs
If you had to do some repairs and maintenance of your workspace, these costs are tax deductible. Even upgrading the wiring, putting up shelves or laying wall to wall carpeting are all business expenses the IRS allows you to write off.
15. Hobby Expenses
The benefits of having a hobby cannot be understated. It’s also a great way to pass time. However, if your hobby (photography, for example), generates an income, you have to itemize it on your tax form.
Nonetheless, the IRS lets you deduct the expenses you used on the activity. If you’re running a business that has not generated a profit in the last three to five years, the IRS deems this to be a hobby and allows you to recoup some of the expenses in deductibles.
16. Attorney Fees
If you or your business incurs a legal bill, you can write off this expense as a miscellaneous deduction. This is only possible, however, if you were using the lawyer to pursue taxable income on your behalf, or if they’re working to collect or refund any tax that’s due to you. For instance, if you are divorced and have retained a lawyer to pursue and recover alimony that’s past due, you can itemize this as a deductible expense.
17. Losses Resulting from Theft or Casualty
These are unknown tax deductions you can use to your benefit. If you lose property as a result of vandalism, fire, storms or any other accidents, you can write off these losses.
Additionally, if you had invested money in an institution and lost it due to insolvency or bankruptcy, you can claim these losses on your tax return. There are, however, three limitations on these claims:
- Regardless of the extent of your losses, you can only deduct the amount that the insurance company failed to reimburse.
- The value of each item must be more than $100.
- The total amount of the losses must add up to more than 10% of your AGI.
To know what the amount of your deduction is, you have to complete the Casualties and Thefts form. Visit the IRS website and download Form 4684.
18. Private Airplane Expenses
Suppose you own a condominium that you rent out to generate revenue. If the condo is located eight hours away from your primary residence, you may decide to purchase a private jet to ferry you to and from your home to save on time and money.
Since you’ll be using the plane for business – property management – you can deduct all expenses related to running the aircraft. These would include fuel costs and market depreciation of the jet.
19. Swimming Pools Expenses
If you’re suffering from an ailment that, according to a medical professional, can only improve if you’re placed on an exercise regimen that requires you to use a swimming pool, then all the costs associated with the construction, repair, and maintenance of said pool would qualify as a deductible medical expense. However, the pool must be used strictly for medical and not recreational purposes otherwise the IRS won’t approve the deduction.
20. Sex-Change Operation Costs
A person who is diagnosed with gender identity disorder can write off the costs associated with undergoing a sexual-reassignment surgery in addition to related expenses like hormone therapy. These all qualify for a medical tax deduction. Cosmetic procedures like breast augmentation surgeries, on the other hand, aren’t tax deductible.
21. Pet Moving Expenses
If you were an active duty military service member, who lost their job and are relocating to start a new one, all moving expenses associated with this relocation are tax deductible. If you’re wondering, “Can you claim pets on taxes?” the answer is yes, you can. Simply write off the expenses you incurred while moving your cat, dog or any other pet during the move, alongside any other personal effects that you own.
22. Farming Expenses: Farm Tax Deductions List
If you are a farmer or are engaged in farming activities, you can offset certain expenses you incur to reduce your tax liability. The IRS defines a farm as an entity that includes poultry, dairy, livestock, fruit, fish, trucks, plantations, groves, orchards, and ranches.
Your farm tax deduction checklist should be split into two categories: Current costs and capitalized costs. Current costs are the expenses that you write off in the year you incurred them whereas capitalized costs are the expenses that you continue deducting over a number of years in the future. Your farm tax deduction checklist can include the following current expenses:
- Salaries paid to full-time and part-time farm workers
- Cost of livestock feeds
- Milk assessment expenses
- Money spent on the repair and maintenance of farm assets
- Money spent on the routine maintenance of farm machinery
- Expenses incurred during the purchase of seeds, fertilizer and other farm supplies during the tax year in question
Capital assets that you can also deduct include farm buildings, water wells land-preparation expenses, renovations that go beyond routine repair and maintenance, and fencing. IRS publication 225 provides detailed instructions on how to write off capital farm assets.
23. Marketing & Advertising
If you have a business, it’s likely that you’ve paid for website design, development, then promotion of your website through a variety of methods. While at first, marketing and advertising costs may seem high – it’s a necessary expense in order to grow. The IRS knows this and thus, classifies it under an expense which you can deduct in full, 100%. Some examples would include:
- Holding an event
- Printing business marketing material
- Hiring an agency to design your company branding materials
- Purchasing traditional ad space such as billboard ads or magazine ads
- Purchasing ad space online (Google ads, social media ads, native ads, etc.)
- The monthly recurring costs of SEO to get your website found in organic search results
- and so much more
Note: You aren’t allowed to deduct marketing or advertising expenses paid to influence legislation (ex: lobbying, political events).
The Bottom Line
The list of business tax deductions is virtually limitless. The IRS deems any expense deductible if it is ordinary and necessary.
As long as you can justify it in relation to your business or medical expense, pretty much anything goes. However, it does help to speak to a tax attorney. After all, the consultation fees are tax deductible!
Are you in trouble with the IRS? Here’s how to get them off your back.