Don’t Miss These 7 Tax Deductions: A Guide for Small Businesses

As a small business owner, tax time can be both daunting and crucial. While you’re busy managing day-to-day operations, it’s easy to overlook potential deductions that could significantly impact your tax bill. Let’s explore some tax-saving opportunities that might slip through the cracks:

1. Petty Cash Expenses

Petty cash is the unsung hero of small business transactions. Whether it’s bagels for the office meeting or parking fees, these seemingly insignificant expenses can add up. Keep meticulous records of petty cash expenditures, noting the date, amount, and purpose. At month-end, input these transactions into your accounting system. You’ll be surprised at how quickly they accumulate, and how easy it is to forget if you don’t record them promptly.

Remember to establish a petty cash policy, including limits, custodianship, and replenishment guidelines.

2. Car Expenses

If you use your car for business purposes, you’re eligible for deductions. Business driving includes:

• Travel between work locations

• Visiting clients or customers

• Attending business meetings

• Commuting from home to temporary workplaces (if you have multiple regular work locations)

You have two options for deducting car expenses: the standard mileage deduction or actual expenses. Maintain a log that records each trip’s purpose and mileage. This log is essential for proving the business nature of your travel and the exact amounts spent.

3. Home Office Deduction

If you operate your business from a home office, don’t miss out on this deduction. Calculate the percentage of your home used exclusively for business activities (e.g., office space). Apply this percentage to relevant expenses like rent, utilities, and insurance. The home office deduction can significantly reduce your taxable income.

4. Startup Costs

New businesses often incur startup expenses before generating revenue. These costs—such as legal fees, market research, and advertising—can be deducted. Keep track of these initial investments and consult your tax professional to ensure compliance.

5. Health Savings Account (HSA)

Consider setting up an HSA if you’re self-employed. HSAs offer tax advantages, allowing you to contribute pre-tax dollars for medical expenses. Contributions reduce your taxable income, and withdrawals for qualified medical costs are tax-free.

6. Research and Experimental Costs

If your business invests in research and development, explore the Research and Development (R&D) tax credit. It rewards you for innovation and technological advancement. Document your R&D activities (time and materials) and consult a tax expert to maximize this credit.

7. EQUIPMENT PURCHASES

If you’re considering making a larger purchase for your business - Section 179 of the tax code could be your friend. It allows businesses to deduct the cost of qualifying equipment (like vehicles, machinery, or computers) upfront rather than depreciating it over time. Take advantage of this accelerated depreciation to boost your deductions - and keep money in your pocket longer.

Remember, tax laws evolve, so stay informed and consult your tax professional to optimize your deductions.