Top 10 Tax Deductions Every Business Owner Should Be Aware of in 2018
by Abdul Aziz Mondal Finance Published on: 02 June 2018 Last Updated on: 18 October 2024
When you own a small business, every dollar counts.
Running a company is expensive; from the employee wages to the insurance payments, it can feel like you’re constantly paying out.
Did you know that there are potential savings you’re missing out on when it comes to tax season? Small business owners are eligible for a range of deductions you may not know about.
Increase your savings and put more into your business or your paycheck. Keep reading for the top tax deductions every business owner should be aware of.
1. Interest :
Most new companies use credit and bank loans to finance their endeavors. Unfortunately, the interest that incurs can be costly.
This tax season makes sure you deduct your credit interest and the interest from your bank loans. If your company’s total profit is under $25 million, your interest is fully deductible. If your profit is higher than $25 million, you can still claim 50% of your interest.
2. Phone and Internet :
Even if you don’t have a separate work phone from your personal phone, you can still partially claim your phone bill.
Calculate how much of your phone activity is spent on business. If that’s 50% of your calls, texts, and data usage, you can claim 50% of your phone bill.
You can also claim your internet bill if it’s used for business purposes, including doing research on filing your taxes. Since every company uses a website these days, you can likely deduct at least part of your internet expense.
3. Travel :
If you travel for work, there are tons of deductions you need to be aware of.
Simply commuting to and from work means you can claim some of your gas expense. If you take public transit to and from your business, you can claim your transit pass.
Traveling out of town for work also comes with its benefits. Plane fare, hotels, meals, etc. are all covered. The condition is that the main purpose of your trip must be for work. You can’t claim those expenses for a honeymoon or a purely recreational trip.
If part of your business is sending employees on trips for work, remind them to keep all receipts and record their mileage if they drive. Travel for business purposes is tax-deductible.
4. Donations :
Making a charitable donation benefits the cause and your tax deductions. As long as the organization can prove they’re legally a charity, and the donation is over $2, it can be claimed. Just make sure you get a receipt.
And, if you receive anything in return for the donation (like a gift or event ticket) simply subtract from that from the amount you claim.
In 2018, you can claim donations up to 60% of your total income. Not a bad deal!
5. Advertising :
Every business should have stellar advertising and promotional materials because these expenses can be deducted on your taxes. That includes business cards, website design services, bus advertisements, etc.
It also includes community sponsorship.
If you sponsor a local sports team or charity event, you can claim that expense as long the sponsorship is clearly connected to your business. For example, having the team include your business in their name or having your logo on all promotional materials.
6. Self Education :
Furthering your knowledge to improve your business is tax-deductible. Any expenses from courses, certifications, textbooks, and more fall into this category.
However, it doesn’t include all types of education, only those that relate to your position at your company.
For example, taking a course to learn a new technology or software in your industry. Or, attending a workshop that shows you how to better manage a team.
That might mean traveling to workshops or classes out of town. In that case, you can deduct your accommodation, computer costs, and any administrative fees.
7. Insurance
Small business owners are responsible for purchasing many different types of insurance. Luckily, most of them are tax-deductible.
For example medical insurance for employees, workers compensation insurance, unemployment insurance contributions, malpractice insurance, fire and theft insurance, etc.
8. Home Office :
Many business owners spend a portion of their day working from home. Whether it’s the first thing in the morning or at night when you get back home, work doesn’t stay at the office.
You can claim your home office space up to 300 square feet. To calculate how much you can claim exactly, measure the square footage and multiply it by $5. Office furniture at home is also deductible.
Your home office is a partial deduction, but if you pay for a co-working space your expenses are fully deductible.
9. Legal Fees :
Ensuring your business is conducted legally and on the books is crucial to your success. It can get expensive, but luckily those legal fees are tax-deductible.
This includes tax professionals that file your taxes. Even if you purchase tax filing software, like UltimateTax, you can claim that cost.
If you choose to purchase legal books or take a course to learn the skills that would enable you not to employ a lawyer, those costs are deductible.
10. Business Gifts :
Taking clients out for dinner, going to coffee meetings, and sending thank you gifts are all costs of doing business. Even the coffee service you hire for your employees and other employee-appreciation gestures can add up.
These expenses are all deductible. It’s a good habit to ask for receipts when you make these purchases and store them in a safe place. Even better, ask for a digital receipt when possible to be sent to your inbox.
Want to Know Even More Top Tax Deductions?
Operating your small business can get expensive, especially as you grow. While scaling up is great, the increase in expenses can be intimidating.
Knowing the top tax deductions you need to be claiming can save you money. Unfortunately, many business owners miss out on those savings because they haven’t taken advantage of all possible deductions.
For more information on small business taxes, entrepreneurship, marketing, and managing a team, check out our blog.
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