If there is anything we know… it’s the absolute HUSTLE it takes to be an entrepreneur. You work hard as a business owner, so obvi you want to take home as much of that hard-earned money as possible. And there’s no shame in wanting more money! One major way to do that is by taking advantage of all of the tax deductions and credits available to you. Deductions and credits lower the amount of your taxable income, which lowers the amount of taxes that you’ll owe. Less money paid in taxes means more money in your pocket! (Woot woot!) Here are some tax deductions and credits that you might be missing out on. 

1. Start Up Costs

Starting your business can be expensive. Like really expensive. Luckily, the IRS offers you a tax deduction for start up costs! You can write off up to $5,000 of your start up expenses in the first year and expense the rest over time. Start up costs include things like grand opening advertisements, training expenses/wages for new employees, and necessary travel costs for securing customers, suppliers or distributors, and just about everything else you can think of to start a business! 

2. Qualified Business Income (QBI)

Don’t get lost in the accounting jargon here! We’ll explain it, we promise. 

The QBI deduction allows you to deduct 20% of your qualified business income. That means you’d only be paying taxes on 80% of your income. This deduction is available to sole proprietors, partnerships, LLCs, and S Corporations. This deduction can get tricky though so we do recommend you work with a tax professional! Just so you can make sure that you correctly calculate your qualified business income and your deduction. But don’t worry, we know a good firm (wink wink, nudge nudge HERE is a hint) 

3. Home Office

In 2020, we all realized how great working from home is. And some of us never went back! #guilty If you work from home, this is a deduction that you definitely don’t want to miss out on! You can deduct a portion of the expenses related to your home office. There’s a catch though…to deduct your home office, you have to use it exclusively and regularly for your business. So if you work from a desk in the corner of your bedroom, you can’t deduct the full square footage of your bedroom as your office. But you could measure the area around your desk and deduct that smaller square footage as your home office space. We know it sounds a little ridiculous…but hey, money is money! 

There are two ways to calculate your home office deduction: the simplified method, or the actual expenses method. Like it sounds, the simplified method is simpler: you just multiply $5 times the square footage of your home office to get your total deduction (up to $1,500). 

The actual method is a bit more complicated since you have to track all of the expenses related to your home office (such as rent or mortgage interest, utilities, repairs and maintenance, and insurance), aaaand you need to include both the square footage of your home office and the total square footage of your home. For that reason, some tax preparers may charge extra for using the actual method. But there is a plus! The advantage of the actual method is that there is no $1,500 limit, so you could potentially save a lot more by using this option. Your tax preparer can help you determine which method would be more beneficial for you. 

4. Depreciation

Normally, depreciation is a bummer but when it comes to taxes, it’s not so bad! If you have any high value business property (such as a car or expensive equipment), you can deduct the costs over several years through depreciation. This means you get to take a deduction several years in a row, rather than only one deduction in the year you purchase the item. The gift that keeps on giving! 

5. Gifts

Speaking of gifts…feeling generous? You can give back to others while saving money on taxes for your business! And it’s a great marketing tool! You can deduct up to $25.00 per person for gifts to clients. (Side note: shipping and engraving expenses don’t count toward the total) 

Let’s say you bought a gift for $28.00 and also paid $5.00 for shipping, you could deduct $25.00 for the gift and $5.00 as a shipping expense. 

Gifts with your logo or branding can be fully deducted as advertising expenses. Plus, who doesn’t love some classy merch?? 

If you buy an occasional holiday gift for an employee or contractor, you can deduct the total amount of the gift, as long as it is a tangible item (not cash or a gift card). 

6. Meals

Calling all foodies…

Typically, you can deduct 50% of the cost for business related meals on your tax return. Be sure to save your receipt or take notes on your calendar about who you were with, what you discussed, and the business purpose of the meal. 

7. Travel

Did someone say vacay?! Ok maybe not vacation but work trip? You can deduct expenses related to travel on your tax return. Travel expenses include things like airfare, hotel/airbnb fees, transportation, and meals. You should note that there are a few guidelines for deducting business travel expenses. You have to actually leave your tax home (the city where you normally conduct business). Sorry, no work staycations! The trip has to be planned in advance and it needs to be considered “ordinary and necessary”. Some examples include traveling to an annual conference for your industry or meeting with a major client that lives across the country.

8. Health Insurance

Normally paying for your own health insurance is one of the worst parts of being an entrepreneur but it’s not so bad if you take advantage of tax deductions. If you pay for health insurance, you can deduct the cost of your monthly premiums. Buuuuut to do so, you can’t be eligible for a health insurance plan through an employer (or your spouse’s employer). Your business also has to have a profit for the year in order to deduct health insurance expenses. 

9. Retirement Contributions

Save for your future while also saving money on taxes for the current year! You can deduct contributions to certain retirement plans, like traditional IRAs and self-employed 401K plans. Contributions to Roth IRAs are not deductible, but you won’t owe taxes on any money taken out of the plan.

10. Education

Not that you didn’t already know this but…it pays to further your education. No really, it pays! Training courses, workshops, classes, books, and coaches can all be deducted as business expenses. The only requirement is that the education expenses must add value to your business. But if you ask us, it’s pretty easy to find something that does! 

11. Professional Fees

Expenses for professional services can also be deducted as business expenses. This includes things like accounting services (cough cough), contractors, legal fees, and subscriptions necessary for your business. Sounds like it’s about time to invest in the people that know their stuff! 

12. Salaries and Wages

Did you know? Compensation for employees is deductible! So no more worrying about growing that team. This deduction can include their salaries, as well as any reimbursed expenses and benefits that you provide as their employer. 

Hopefully that list is enough to get you started! Tax season will be here sooner than you think. So make sure you look into these deductions ASAP. If you need any help with your tax preparation, you know who to call. You can reach us at office@pattonaccounting.net and on Insta.