So you started your own business? Congratulations! That’s quite the feat and while you might have an easy time determining what your income is while doing your taxes, figuring out what qualifies as a business deduction can prove to be a bit harder. Below are just some of the business expenses that qualify as a tax deduction.
#1: Insurance
Business insurance that you purchase with the intention of protecting your business and medical insurance that you offer to your employees as a benefit are both tax deductions. However for medical insurance, there are different rules for S-Corporation shareholders. Auto insurance is a little different and falls within a different set of tax laws.
#2: Home Office Deductions
If you work out of your home, you can deduct the expenses related to the portion of your home that is utilized exclusively and regularly for business or trade. This has to be an official office and not just a comfortable space in your home. In order to figure out the amount of the deduction, you must first calculate the total costs associated with your home (rent, utilities, insurance, mortgage interest, real estate taxes, etc.). Then take the square footage of your office divided by the total square footage of your home and apply that percentage to the total costs to calculate the tax deductible expense. However, with the new tax laws, you should contact your tax advisor on how best to calculate and report the home office deduction.
#3: Marketing Materials
Any materials that you use to market your business and the cost to develop these materials can be tax deductible. This includes advertisements that you run in the local newspaper, flyers that you print, branded promo items that you create for a giveaway, the costs of events or trade shows that you attend, and other marketing costs. Business gifts, however, are deductible to a limited extent. The IRS allows a deduction for the first $25 worth of gifts to each individual customer.
#4: Travel Expenses
Travel – such as airfare, lodging, rental cars, etc. – related to business trips is deductible but if there are elements of personal costs or entertainment within the trip, those portions are not deductible. You can deduct the mileage you drive for business travel however you cannot deduct commuting costs between your home and office. Meals and entertainment tax deduction laws have under gone significant changes in 2019, therefore check with your tax advisor as to how these laws affect your company.
#5: Costs of Employees
The costs of having employees are deductible. This includes wages, benefits, dues and association costs, licensing, payroll taxes, and retirement/pension plans and other fringe benefits. There are certain guidelines as to the deduction of reimbursements to employees. Please contact your tax advisor for these new tax law changes.
The Tax Cuts and Jobs Act included changes to how you deduct fringe benefits. This can affect your business’s bottom line and your employees’ taxes.
Under the new law, taxpayers may not be able to deduct:
- Expenses related to entertainment, amusement and recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present.
- Qualified expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There’s an exception when the transportation expenses are necessary for employee safety.
- Qualified expenses for bicycle commuting; these must now be included in employees’ wages.
- Qualified moving expenses; these must now be included in employees’ wages.
Please contact your tax advisor for additional information on the new tax law changes.
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