Small Business Tax Deductions

If you own a small business and want to cut down on taxes, there are several possibilities for tax deductions. You just need to know which areas you can claim tax deductions. You’ll be rewarded with a smaller tax bill (or larger refund) come tax day.

Here are many of the different costs that small business owners can claim as tax deductions:

Capital Expenditures: The cost that you bear to initiate your business or expand it should be recorded and backed up with appropriate documents. You should apply to amortize or deduct the expenses in the same year; otherwise the expenses become nondeductible until you sell the business.

Expenses for Licenses and Permits: You must amortize the costs that you incur while getting your business license and other permits.

Transportation expenses: Gas, tolls, and other transportation expenses can be deducted in the form of business transport cost. Generally people take the standard mileage rate deduction as it is easier to keep a record, but the actual expenses often give a larger deduction.

At-home Office: Do not hesitate to deduct costs if you have a legitimate office at your residence address. Make sure that the room is used only for business purposes. If you have such a space, you can deduct a portion of rent, insurance, taxes, and maintenance.

Internet and Telephone Bills: You can deduct any dedicated charges of your business like internet and telephone bills. If you use your home or personal cell phone for business, you may only deduct the amount that you spent for business purposes.

Relevant Training: The cost of education or certification that you require for your business can be deducted as well, if it is relevant to your ongoing business.

Miscellaneous expenses: Maintain a proper record of all your business travels, meetings, and transactions. This includes transportation, food, and hotel expenses. Remember that only fifty percent of meals and entertainment costs are deductible, while expenses in clubs cannot be deducted.

Insurance payments: Insurance premiums for the business for one year or less are deductible, while excess prepaid premiums are deductible in subsequent years.

Promotions and giveaways: If you have giveaways for your clients, they are deductible up to approximately $25 per gift. Promotions and advertisements are deductible on a contractual term and may vary.

The need to optimize costs is particularly necessary if you have started a small business with little capital investment. With a minimal income, your goal will be to stretch your dollars as far as possible until your efforts bear fruit. Tax planning is a year-round activity if you want to minimize the tax bills for your business. It can be beneficial to stay informed about new tax rules, and configure your business with tax cuts in mind.

Daniel’s note: While I don’t make much from running this blog, one of the advantages is that I can deduct almost all expenses associated with running the blog. So when I paid for my domain name, I recorded the expense and at the end of the year included my calculations in my taxes. Similarly, I must pay taxes on any income I make from the blog!

6 Responses to Small Business Tax Deductions

  1. Simple in France says:

    Interesting–I don’t have a monetized blog, but maybe someday. Do you consider your blog a small business then for tax purposes? Hah! I’m already starting to freak out about how complex the taxes will/would be.

    • Daniel says:

      @Simple in France, It’s actually much simpler than I imagined. Basically I just keep track of all income and expenses related to the blog. At the end of the year, the tax software makes it really easy to enter extra income and expenses. No need to “officially” start a business or anything. I got worried too, but it’s no big deal now.

      Also…I don’t make much, so most of my transactions are expenses!

  2. Mrs. Not Made of Money says:

    We treat our blog as a small business. Like you said, tax planning is a year round event. We are meticulous about keeping receipts and documentation. We regularly review our blog income, expenses, how much our estimated taxes are etc. and keep all the documentation up year round. It’s the way people run a “big business.” This way when tax time comes we aren’t “taken by surprise.”

  3. For what it’s worth, I don’t think you have to declare your earnings until they are over $500…at least that’s the limit for contract work like sports officiating.

    My husband gets to take mileage and expenses as deductions and they always add up to more than what he actually makes (mileage deductions were a little more than $0.50 a mile in 2009 and my husband drives A LOT).

    Of course, if your expenses are greater than your earnings, it makes sense to declare everything anyway. :-)

    My blog has so far cost me $10.00 for my own domain name and brought in $20.00 from Mint.com and less than $3.00 from Adsense. I’d love to need to declare everything if it meant making more than $500!

    Just to be sure, does anyone else know if the limit is the same for somebody with a blog and somebody who is a referee?

  4. Dave says:

    I understood you could assign a % of your utilities to go with the room designated as a study in your house.

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