You don’t have to be an expert tax agent to understand that leaving money on the table is a bad idea. Yet, every year countless business owners end up doing just that by not taking all the deductions they’re entitled to. If you want to avoid this costly mistake and keep more of your hard-earned money, here are some of the most commonly overlooked deductions to consider:
Home Office Expenses
Many entrepreneurs neglect the deduction for home office expenses, which can include a portion of rent, utilities, internet costs, and even office supplies. This deduction is applicable whether you rent or own your space, making it vital for anyone who works from home.
This deduction acknowledges the operational costs of running your business and lowers your overall tax burden as a result. To claim it, ensure your home office is exclusively used for business activities. Calculate the square footage of your office as a percentage of your home’s total area. Then, apply the percentage to various home expenses. Remember, detailed records and receipts are crucial for substantiating your claims.
Educational Expenses
Whether it’s courses, workshops, seminars, or conferences, business-related educational expenses are often missed. Books, trade publications, and subscription services that keep you informed about your industry can also qualify.
These deductions recognize the importance of ongoing education to enhance your skills and maintain a competitive edge. So keep receipts for all such educational expenses, and claim them at tax time. Just keep in mind that these expenses must directly relate to your current business operations or be intended to improve related skills. Documentation should include the event’s name, date, cost, and relevance to your business.
Depreciation of Assets
The depreciation of assets like computers, office furniture, vehicles, and machinery is a valuable deduction to take. This includes both purchased and financed assets. The aim is to help business owners recover the cost of significant expenses by recognizing the asset’s wear and tear over time. This deduction spreads the cost of an asset over its useful life, providing a more accurate picture of your annual expenses.
To claim it, properly calculate and report the depreciation. The IRS has specific guidelines and schedules for different types of assets, so read these carefully or get professional advice to maximize this deduction.
Business Insurance
Premiums paid for business insurance, including liability, property, malpractice, workers’ compensation, and even auto insurance for business vehicles, are fully deductible. Insurance is a crucial part of protecting your business, and acknowledging its cost as a deductible expense can significantly lower your tax bill.
To do so, maintain detailed records of all insurance premiums paid throughout the fiscal year. Ensure these expenses are clearly designated as business-related to fully capitalize on this deduction.
Health Insurance Premiums
Self-employed individuals can deduct premiums paid for medical, dental, and qualifying long-term care insurance for themselves, their spouse, and their dependents. This deduction extends to Medicare premiums and supplemental policies. These deductions can offer substantial savings, especially in light of rising healthcare costs.
Ensure your insurance plan qualifies under the IRS rules, and report the premiums as a self-employed health insurance deduction on your tax return. This deduction is taken as an adjustment to income, meaning you can benefit from it even if you don’t itemize deductions.
Understanding and leveraging these five tax deductions can significantly impact your business’s financial health. While this guide serves as a starting point, an experienced tax agent can provide personalized advice and ensure you’re capitalizing on every available deduction. Remember, every dollar saved in taxes is one more dollar to invest back into your business.