As a small business owner, you know how important minimizing expenses is to the well-being and growth of your business. Here are three tax write offs that are often overlooked or under-utilized.
Personal expenses are off limits when it comes to tax deductions, but if you own a car that is used both personally and for business, it’s fair game. You will need to keep track of what percentage of the time you use the car personally as well as the percentage the car is used for business purposes. If you’re an independent business owner, the IRS recommends tracking your actual mileage spent on each type of travel. Don’t forget to record business-related parking expenses and/or tolls, too.
Start-up capital can be a big chunk of operating costs when you first open your business. Luckily, many deductions are possible when it comes to start-up costs.
Firstly, let’s look what are called “investigation costs”. These are the costs incurred while doing research surrounding your potential business: scoping out potential locations, surveying markets, and other similar expenditures. Keep in mind that these investigation costs will only be considered a valid write off if they result in a business being formed. The cap for first-year investigation cost write-offs is $5,000 – and this is only if your total startup costs come in under $50,000.
Another start-up cost that can be written off is the cost of actually getting the business ready to open – before you begin operations and start generating income. These costs are things like advertising, travel expenses, employee training, and consultant fees.
If you’ve used credit cards to pay for business expenses, remember that the interest and carrying charges are tax-deductible in full. This is also true for a personal loan taken out by you and spent on your business. Be sure to keep good records so you can show that the money was used for your business.
Advertising your business using online ads, direct mail, or by other means is labeled a “current cost” by the IRS, and, yes, is tax deductible. Does your company sponsor a local kids’ soccer team or 5k run? That falls under promotional costs as well and is able to be written off your taxes. Be sure that there is evidence of your sponsorship in writing.