7 Small Business Tax Write Offs To Know
Tax season has crept up on us. It’s that time when you’re sending out income forms to all your employees and contractors, going over your expenses, and finding an accountant to help you meet the IRS deadline.
This year, thankfully, the IRS is giving us all more time to file. By April 18, you’ll want to make sure that everything is squared away.
Aside from the standard write offs for businesses, there are numerous breaks that you should be taking advantage of.
Small Business Owner Tax Write Offs
Here are several—some new for 2016—may not have realized you could use this year.
Don’t overlook new tax breaks
According to Anil Melwani, a certified public accountant and founder of 212 Tax and Accounting Services in New York City, small businesses should look into the Protecting Americans from Tax Hikes Act of 2015. Passed by the House of Representatives and the Senate late last year, the act gives small business owners two very large tax breaks. The first, Section 179, states that small business owners are able to deduct a maximum of $500,000 for the purchase of equipment and other assets for 2015.
The second tax break, called 50% Bonus depreciation, lets businesses “depreciate 50 percent of the cost of equipment acquired and put in service during 2015, 2016 and 2017,” according to Section179.org.
“Then bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019,” Melwani says. “These two tax breaks are huge for small business, and could be used to help many American businesses to grow.”
Remember your own funds you invested
You may have used your own money to start your business in 2015. Before you even officially declared your idea a business, you had to pay for incorporating and accountant or attorney consultations. When filing, you can’t forget to include that information. Alan Mehdiani, a CPA and the CEO of My Tax Company in Los Angeles, says, “These costs won’t show up in your business accounts, so they are often overlooked.”
Don’t forget charitable donations
About 75 percent of small business owners give to nonprofits every year, according to the Small Business Adminstration. If you did the same, you’ll be able to claim them on your taxes. Just make sure that you can locate the receipts from your donations to legitimate nonprofits, that your donation was fully paid last year, and that you’re deducting a dollar amount, not time you spent volunteering. However, if you were required to purchase tools in order to participate in volunteering, those are deductible, as well as your gas expenses.
Write off your home office
Do you conduct business mostly out of a home office? Perhaps you work days at the office with all of your employees, but find yourself spending even more time building your company from your den after hours. This may qualify you for a write off. All you have to do is multiple the square footage of your home office by $5. The maximum that the IRS allows you to claim is 300 square feet. With this simplified option, you can also incorporate itemized deductions like interest on your mortgage and your real estate taxes. Plus, if you purchased furniture for your office in 2015, you can claim the full price. Otherwise, if you bought it within the past seven years, you can claim a portion of it, since it depreciated in value.
Use your phone for business? Deduct that, too
There is no such thing as a boundary between work and your personal life, especially if you’re a small business owner. According to Mehdiani, you can write off your mobile phone when you utilized it for business purposes. For example, if you used it 20 percent of the time for business, you could claim 20 percent of your phone bill for the year on your taxes.
Deduct full cost of co-working spaces
If you operate your small business out of a collaborative workspace like WeWork, you can write off 100 percent of your expenses. Unlike the home office deduction, this one doesn’t require any math.
Write off transportation for work
Unless you live in New York, chances are, you’re driving to work every day. According to the IRS, the standard mileage rate for 2015 taxes is 57.5 cents per mile, up from 56 cents last year. If you drove for charity, you can claim 14 cents per mile. Entrepreneur’s Chris Newmarker writes that you can save big money by dividing business miles by the total amount of miles driven, and then applying the percentage you come up with to vehicle expenses. This may mean that you can claim tire changes, car washes, and anything else that keeps the car in good shape.
This year, don’t overlook any possible deductions. Find a local CPA who can walk through your taxes step by and step and make sure you’re getting the most out of your return.