Capital expenses
Capital expenses are those costs associated with getting your business started, such as utilities, office repairs, office supplies, and advertising. You can deduct $5,000 of your capital expenses during your first year of business, after which you must deduct these expenses in equal amounts over the next 15 years.
Legal and professional fees
You may also deduct those expenses involved in consulting an attorney, small business CPA, or some other business consultant. These expenses must be deducted during the year incurred—unless the expenses clearly applies to future years of your business (in which case it must be deducted over the course of the benefit).
Property rent
The cost of renting an office, storefront, factory, etc. is also fully tax deductible.
Home office
If you use a space in your home exclusively for work, then the expenses for this space in your home are tax deductible. The catch here is that the space must be used for work and nothing else. Your home office does not have to be a single room, either; if your work area simply part of a room, you can calculate the square footage of the area and deduct it. Tax-deductible expenses include direct and indirect costs, such as painting, furniture, and a portion of your mortgage.
Utilities
The utilities involved in running your business are tax deductible as well. This includes things like electricity and your cell phone bill. If you use a landline in your home for your business, it must be a second landline in order to qualify for a tax deduction.
Employee wages
The salary for owners and partners of your business may not be tax deductible (these are non-deductible draws), but your employee wages are.
Contract labor
Many small businesses hire independent contractors to meet their labor needs. For anyone contractor who earns $600 or more per year, you may deduct this expense as well.
Vehicle expenses
Vehicle expenses can be a little tricky, so this is definitely something you’ll want to consult a CPA about if you have questions. For vehicle expenses, you can either deduct the actual expenses incurred, or you can deduct according to standard mileage rates set by the IRS. Be sure to keep track of not only mileage but also business related toll and parking fees.
Travel expenses
Need to travel for business reasons? Transportation and lodging expenses are also tax deductible.
Taxes
Taxes are also tricky because certain types of taxes must be deducted in certain ways; so you definitely want to consult a professional here is you have questions. Generally, the taxes you incur in your business operations are tax deductible. This includes sales tax, excise and fuel taxes, real estate and property taxes, and employment taxes.
This, of course, is only a brief introduction to small business tax deductions. Some other often overlooked deductible expenses include:
- Commissions
- Bank service charges
- Credit bureau fees
- Business related magazines and books
- Trade shows and seminars
- Promotion and publicity
- Office supplies
- Postage
If you are new to small business taxes, be sure to consult a small business tax professional.