Small businesses spend thousands of dollars and over eighty hours a year to prepare for and file their federal taxes. Despite all of this time and effort, these businesses lose billions of dollars annually on tax deductions to which they fail to take advantage.
Here are seven tax deductions that your small business is probably missing out on. A small business owner should not only be finding ways to earn money but also be finding ways to save money.
1. Charitable Deductions
Small businesses often fail to account for all of their tax-deductible charitable contributions. While some charitable donations are relatively straightforward and easy to track—like a check written directly to a charity—others, especially smaller out-of-pocket charitable donation expenses, are almost always overlooked.
Furniture or clothing that businesses donate to charity can also be deducted, as well as stamps purchased for mailing charity flyers, the price of driving vehicles in support of a charitable cause, etc. Make sure your small business is capturing the little donations, as well as the big ones since they all add up.
2. Vehicles: Gas, Maintenance, and Depreciation
The vehicle or vehicles your small businesses use provide multiple venues for often-overlooked tax deductions.
Fuel costs are deductible, as are operating expenses like parking fees and tolls. Vehicle maintenance and service fees can be deducted as well.
Finally, depreciation on the small business vehicles can be deducted as well, although many businesses fail to do so.
3. The Home Office Deduction
This is a brand new business tax deduction, enacted in 2013, so it is not surprising that many small businesses are overlooking it. The home office deduction allows small businesses that operate out of a home to deduct $5 for every square foot of space used for the business, up to 300 square feet.
So, for example, a business that operates out of a person’s 275 square foot basement workshop would be eligible for a $1375 deduction.
4. Rented Business Equipment
Any equipment that business rents—farm machinery or structures, storage facilities, industrial restaurant equipment—can be deducted.
Most businesses, big or small, have to spend considerable amounts of money on advertising, and it is tax-deductible. This is yet another tax break that many small businesses fail to take advantage of.
Beyond just print, television, and digital media advertisements, other promotions directly related to the business, such as sponsorships, brochures or flyers sent out, business cards, and even display racks highlighting products, can all be deducted.
6. Software Purchases and Subscriptions
Another relatively new tax deduction small businesses often do not take advantage of is for software purchases and subscriptions. If your business uses off-the-shelf software—for writing and marketing, accounting, inventory or other direct business uses—the software’s purchase price can be deducted.
The primary stipulations for claiming this deduction are that the purchased software is used directly in the business and that the software is available to the public and not custom-made.
7. Periodical Subscriptions
A relatively obscure deduction that businesses are almost certain to overlook is their periodical subscriptions.
If your business pays for newspapers and magazines to adorn the coffee tables in your waiting room, or uses them to conduct research in support of the business, those subscriptions are deductible. Internet subscriptions along the same lines are deductible as well.
Small business owners spend a great deal of time, money, and effort on federal taxes, but still miss out on billions of deductions they are eligible for every single year.
This list provides a glimpse of some of the deductions, big and small, that your company may be overlooking.
Make sure you check with your accountant and review your operation; undoubtedly there are more tax deductions your company could claim if you took the time to find them.
By William Lipovsky