February 4, 2023

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While there are other benefits, making money is one of the main reasons for doing business. And it goes without saying that when you’re in business, you want to keep as much of what you generate as possible. That could be why so many people hate paying taxes.

But if you do your accounting correctly, you’ll find that there are ways to keep some of the value your business generates. All you want to do is pay your fair share. And keep what’s left to run a successful small business or grow that business into something even bigger.

Most importantly, remember that you pay taxes on your winnings, and your winnings are your income minus your ordinary expenses; you report this to the IRS on Schedule C each year. So when you sit down to do your taxes or hand over your information to your tax accountant, you need to be sure you’ve tracked every business expense.

Related: These are the top tax filing mistakes made by small business owners (and how to avoid them)

Which deductions are clear? Anything you buy that directly impacts your business and is used for your business. If you’re in construction, it’s the cost of your equipment and resources. If you’re a web designer, it’s the software you use. Look at Schedule C and you’ll see the obvious: advertising, office expenses, licenses, utilities, and more.

You should be careful about defining some expenses, especially if you run your business from your home. Yes, you can deduct the part of your home that you use exclusively and regularly for business purposes. But if you work at your home office during the week and watch football on Sundays, that’s not exclusive to your company. If you only put your end-of-month accounting in it – even if that’s all you put in it – once a month office use isn’t considered regular use.

But when you compile your receipts or download expense data from your small business financial management system to provide to your tax accountant, there are bound to be some expenses you may not have thought to include. There may be other expenses you claim that don’t qualify for a deduction. If filed in error, these errors could cost you fines — or worse — if you deducted more than you should or should.

Related: Here’s why it pays to track every small business expense

Tax deductions you may be missing out on

While Schedule C lists 21 types of expenses, you may still be missing some perfectly legal deductions. For example:

  1. Repairs or modifications to your home office: If you’re there all the time, expenses like painting, new flooring, and brighter light fixtures are deductible. A cleaning service for your office would also be good. The desk and filing cabinets you use are also deductible, as is the repair to the wall after your desk chair breaks it.
  2. Course: Any education or training related to what you do to make money is deductible. Many professionals require professional development courses to keep their licenses current. Others take classes to learn how to improve their business. If relevant, it is deductible.
  3. Local travel: When you visit a customer and pay to park in the parking lot across the street, that parking fee is deductible. If you take a bridge toll to cross the river to visit your client’s office, that bridge toll is deductible. And so will your mileage, assuming your customer doesn’t reimburse you for those costs.
  4. Your website: A website is a must-have to find and connect new and existing customers. All related costs may be deductible – paying to the person who created the website for you, paying for the website to be hosted, paying for its security, paying for the photos and the copy you put on it, etc. It makes all part of advertising, and that’s more than paying for a small ad on your local radio or television station.
  5. Start-up costs: If this is your first year, the legal and professional fees you pay to complete and file your paperwork are deductible. Fees above the $5,000 limit for the first year are amortized over the next 15 years.
  6. Research and development: If you create a new product, the costs involved in bringing that product to market are deductible.
  7. Interest on debt: A loan you take out for business purposes is tax deductible as long as it is a business transaction. Keep track of the interest costs so that you can deduct them from the tax authorities. Your business credit card interest is also deductible.
  8. Subscriptions to industry publications: Every trade has a publication that keeps its practitioners informed, of Ad age until Store chain age until Industry week. Online subscriptions are also deductible.
  9. Pension savings for the self-employed: These include simplified employee retirement plans (SEP) for the self-employed, solo 401(k) plans, and Keogh or HR-10 plans.
  10. Promotional gifts: There is a limit of $25 per person per year for customer gifts. But 100 percent of employee meal costs at events such as holiday parties and company picnics are deductible.
  11. Benefits for your employees: Coffee at the office? That candy bowl at the front desk? 100 percent deductible. Lunch brought to the office can be fully deductible, while taking the team for lunch is only 50 percent deductible.
  12. Membership fee of a club or organization: The organization must be business or community related, such as a chamber of commerce, trade association or professional body.
  13. Mowing: If you receive clients at your home office, keeping the entryway of your home clean and presentable can be a deductible.
  14. Childcare for solo professionals: If you are a parent and have a home office but need to meet a client away from home, childcare is deductible. If you leave the house to go shopping, that’s not the case.

Related: 75 items you may be able to deduct on your taxes

Remember, you can’t deduct what you don’t keep track of. Prior to the 1980s, you didn’t have many options – filing systems included paper, pencils, and filing cabinets. In the late 20th century, spreadsheets became an option, requiring care to put formulas in the correct cells and remembering where related backup documentation was stored.

The modern era has given way to even better ways to track information and distill years of bookkeeping and bookkeeping knowledge into an easy-to-use software platform. Now you can keep track of all the purchase orders, invoices and receipts you need as a backup for your accounting. And make sure they’re all secure in a cloud-based system. Files, images, emails and scanned paper documents can be captured from a mobile device or computer and stored securely online. You can easily categorize all transactions by account category and relevant tax schedule for later reporting and filing.

These systems can be accessed from anywhere your business takes you, from the home office to the factory floor to an out-of-state business pitch. You can retrieve them when needed (such as for a loan application, meeting with your accountant, or deciding on financing for a business improvement).

Consider financial document management solutions that can also automatically extract data from these documents. Instead of keying these numbers into a spreadsheet or paying your tax advisor to do this manual work, systems like Neat automatically feed financial data into accounting and tax software. These systems can make it easier to account for all your business expenses – the obvious ones and the ones that are often overlooked.

Related: The Most Forgotten Tax Deductions Entrepreneurs Should Take

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