7 Business Tax Deductions You May Have Missed
In today’s tight-margined business climate, small business owners must remain diligent and keep their eyes peeled for any way to cut costs. One such opportunity is diminishing your burden with the tax man.
Leaving available deductions off your return is akin to tossing money in the trash. Check these seven oft-overlooked write-offs to make sure your company’s not leaving cash on the table.
1. Home office deduction
Despite the fact that more half of all sole proprietors work out of the home, only one third of businesses eligible for the home office deduction take advantage of the tax break.
Accountants used to warn that taking the write-off could increase the likelihood of an audit, but times have changed. Working from home is so commonplace that the home office deduction is no longer the red flag it used to be.
Consult IRS Publication 587 to determine eligibility.
2. Pre-operation startup costs
Up to $5,000 in pre-operation startup costs can be deducted for each year of operation (up to 15 years if startup costs exceed $5,000 and must be amortized), even if the costs were incurred prior to the inception of the business. Expenses related to research, planning and exploring the business opportunity may qualify.
Publication 535 offers more in depth details and limitations on the deduction.
3. Bad debt
Unpaid loans to vendors, employees or another business can often be written off as bad debt.
However, bad business debt and bad nonbusiness debt are treated differently so be sure to clarify which losses qualify as deductions prior to taking them on your return.
4. Fees for banking and accounting
Bank fees and any fees you pay for the preparation of tax documents are fully deductible. All bank fees qualify, including charges for accounts and ATM withdrawals and any fee related to a bank service.
5. Cash accounting to write-off inventory as materials & supplies
Certain small businesses, specifically those primarily engaged in the sale of services, may qualify to employ cash accounting (as opposed to the accrual method) for inventory to treat for-sale goods as materials and supplies for tax deductions.
An example of such a business would be a masseuse who also sells oils, books and other massage related goods in their office.
Designated industries are barred and average gross receipts over the previous 3 years may not exceed $10MM. Should your business be eligible, don’t forget to file IRS Form 3115 for change in accounting method.
6. Credit card interest
Small businesses or sole proprietors who buy new business equipment with a credit card can deduct the interest from such purchases just as though the upgrades were financed through a loan.
7. Unused deductions carried over from previous tax periods
Your business may be entitled to take advantage of certain deductions the company wasn’t able to apply in prior years.
Capital losses, charitable contributions, passive activity losses and more are all eligible for carryover in many scenarios.