Year End Deductions Can Save You Money
Our prior look at ways to reduce taxes explored long-term planning with short-term tax deductions, Qualified Retirement plans, and what to utilize for a small/growing, closely held, business.
As the calendar, and tax year, is now winding down let’s go through four tax deduction categories which, in many situations, are underutilized but, when maximized to their greatest extent possible, could have a major impact on your tax return:
Office Supplies and Technology. Every small-business owner is regularly buying supplies and upgrading their phones, computers, and digital reading devices. Don’t forget that when you have a small business, the majority of these items can be expensed. Recent case law and IRS rulings allow business owners to write off 100% of their cellphone expenses, so long as they have at least one dedicated home phone line. Moreover, make sure to include the cellphones of your family members that work in the business alongside you and who need a cellphone for legitimate role in the business.
Auto Deductions. These are expenses for your car or truck used in your business. There are two main options: mileage or actual expenses. In 2015, the business mileage deduction is 57.5 cents per mile. As for “actual” expenses, this requires you, the business owner, to track all of your fuel, repairs, and maintenance during the year. The easiest way to capture these expenses is to have your business pay for them. The extra bonus for utilizing this strategy is that you get to deduct depreciation on top of the “Actual” expenses. However, depreciation is limited for cars and, based upon your amount of usage, may be a terrible method to deduct auto expenses and is why more people use the mileage.
Travel-Related Expenses. Unlike meals and entertainment, which are limited by 50%, travel expenses are 100% deductible. These include airfare, hotel, rental cars, valet, taxi, trains, tolls, etc… It is amazing how many tax returns come across my desk every year from new clients with literally zero travel deductions. It just doesn’t make sense for any business owner to not have some travel expenses or try to make every trip a “business trip.” Your close family members may hate it, but you’ll love the tax break on your tax return. Plan to attend a seminar for at least half the day when you go to your favorite city. You can deduct your travel to and from the city, and the travel day to get there and the travel day you leave are both considered business. Moreover, you can deduct a pro-rata share of the trip if you have personal days while there.
Dining and Food for the Office or Events. The biggest deduction for food that business owners miss, and which is not limited by 50%, is that for food in the office or for special events with customers/clients. This is a 100% deduction, and as such should be tracked as a separate line item. This would be donuts in the office on Fridays, or stocking the fridge with soda for your employees, and events where you purchase food for your attendees at a presentation you make.
Now, with all of these expenses, you need to take into account your overall income, profit, and the size of your operations. Your deductions need to look realistic and common for the type of business you have. However, if they’re legitimate and you have support, don’t be afraid to take them. Go for it, and just have your records as backup if you need them in the future to justify your expenses.