15 Often Overlooked Tax Deductible Business Expenses
Identifying tax deductible business expenses is often left to bookkeepers or other employees to the detriment of the business’ finances. The successful business owner often works long hours and takes few days off while they build their business. Somewhere in between trying to increase revenues, decrease expenses, and grow the business they can overlook the underlying value of identification of all valid deductible business expenses.
At some point, the business owner should work with an accountant, bookkeeper, or tax preparer to identify all legally tax deductible business expenses for their business. It is not always possible or cost effective to go back and try to recoup expense deductions from previous years, as it will require filing amended tax returns. Here are the top 12 overlooked tax deductible business expenses.
Purchases with petty cash – Generally, items or services purchased with petty cash involve small dollar amountsi. For this reason, it is common for receipts to be misplaced or never saved in the first place. These small expenditures add up over the course of the year.
Research and development – Do not dismiss this because you have a new small business. Most expenses incurred in research of or developing a new product or service is deductible. This could include testing new products involved in your services, or you may buy parts or items involved in your production process just to see if you get a better result.
Home office deduction – Based on the dedicated space in your home’s square footage, you can deduct expenses as a percentage of items like mortgage interest, utilities, etc. The space must be dedicated solely to the business.
Startup and organization costs – For many businesses, there are local licensing fees, permit fees, and costs to meet local government requirements. The business can also deduct professional fees incurred to get started such as accounting, legal, etc.
Debt interest – A large percentage of new or young businesses grow through debt. It can be interest on credit cards used for business, bank loans, signature loans, or other indebtedness. Tax deductible business expenses include interest on debt.
Loss carryovers – There are several categories of expenses that do not allow deduction in the current tax year over the amount of profit. So, if the business has losses that cannot be deducted that tax year, they can be carried over into future tax years.
Inventory – Depending upon the type of inventory and the nature of the business, some inventory can be reclassified as materials and suppliesii. The cost of materials and supplies are tax deductible business expenses in the current year.
Accounting & tax preparation fees – This seems obvious, but when it can be almost a year between a one-time expense and taking the deduction, it can be forgotten.
Bad Debts – If you loaned money through the business or have unpaid accounts receivable, you may be able to write the amounts off as bad debt expense.
Self-employment taxes – As a self-employed individual, you can deduct one-half of the Medicare and Social Security amounts paid. This is a personal deduction, not a deductible business expense, however.
Cell phone bill – Determine the amount of time and the overall usage percentage of your personal cell phone used for the business. Deduct that portion of the bill as one of your deductible business expenses.
Educational expenses – Those seminars you attended to help with your management skills, or training you paid for to do a better job or produce a better product or service are tax deductible business expenses.
Home Internet bills – Small business owners never stop working. How much time do you spend on your home Wi-Fi and Internet systems to monitor your business, or to communicate with customers, vendors, or employees? You can deduct a portion of these costs as valid tax deductible business expenses.
Parking and tolls – All of that running around you do for business will generate expenses for parking and tolls. Keep receipts, as these add up.
Local travel expenses – Even if you do not use a personal or company vehicle for local travel, if it is for business, you can deduct Uber, taxi, and public transportation costs.
Those are the most often-overlooked tax deductible business expenses, so keep track to save money.
“Deductible business expenses” density of 1.5%.
“Tax deductible business expenses” density of 1.4%