Did we say something that caught your attention? As a small business owner, it is a constant struggle to keep up with the internal responsibilities associated with on-going financial and business operations. As the business grows, the complexity can be daunting and unfortunately, the piece that is often overlooked is the accounting process. Reporting to capture your income and expenses in the most tax-advantageous manner shapes the picture for year-end tax preparation. This time of year is a great opportunity to review some of the various tax deductions available to small businesses. The write-offs offset your taxable income, and thereby often lower your tax bill.
Some items to consider for the year ahead:
- Advertising and promotion – want to send a card, promotional item to clients, or sponsor an event?
- Business meals – if you provide your office staff with a picnic or holiday party, this social event is 100% deductible. Yet, lunch brought in, office snacks, team trainings or other meals, with employees or clients are only 50% deductible.
- Business insurance – have you reviewed your insurance policies to make sure you are adequately covered for emergencies? Is a data breach of a concern, and if yes, are you carrying cyber liability coverage?
- Business interest and bank fees – you can deduct merchant fees paid to a third-party such as PayPal or Stripe, just make sure you are capturing this fee separately on your financials.
- Business use of your car – have you discussed with your Accountant the best method– standard mileage rate or actual expense method? Set up an app to track your mileage.
- Depreciation – with all the changes this past year, any plans for new furniture or equipment? Make sure it is booked correctly. Items over $2,500 are capitalized verses under $2,500 may be recorded as computer expense, office supplies, or small tools and equipment expense.
- Education – how about company bonding at a seminar or workshop to improve skills and at the same time help your bottom line.
- Home office – working from home, telecommuting, remote workspace. An in-home office may qualify as a deduction if the space is used solely for business.
- Legal and professional fees – yes, those accountant fees are deductible, along with bookkeeping services and lawyer’s fees.
- Moving expenses – also a write-off to consider so keep all receipts with your records.
- Rent expense – both space and equipment may qualify.
- Salaries and benefits – some are certainly deductible. Be certain you are treating payments to a sole proprietor, partner, or LLC member correctly.
- Taxes and licenses – payments for state licensing or business privilege taxes are deductible expenses.
- Telephone and internet expenses – double check your usage, meaning if your cell phone is both business and personal, you need to split out the bill (best practice is no personal expenses passing though company financials).
- Travel expenses – tips and dry cleaning while on business, yes deductible, but keep receipts and a log to ensure creditability if audited.
The IRS has specific criteria regarding many of the tax deductions listed above. Best practice is to consult with your tax advisor or CPA to discuss which apply to your business and then ensure you are reporting on your financials correctly.
McKonly & Asbury’s Entrepreneurial Support & Client Accounting practice can help you analyze this list, review your accounting system, and identify and recommend financial reporting changes for 2021. We also have the capability and expertise if you elect to outsource the entire financial process. For more information on our services, visit our Entrepreneurial Support page. Please reach out to Lindsay Young, Senior Manager at firstname.lastname@example.org and together we can help make 2021 less of a struggle and more profitable.