For small business owners, filing year-end taxes and making large payments to the IRS can be overwhelming in itself; this season might seem particularly daunting amid another year of uncertainty. To ease the stress of 2021 filings and, more importantly, reduce final amounts owed, business owners and accountants can seek to take advantage of certain deductions and expenses.
There are dozens of deductions and expenses entrepreneurs can qualify for that could save them a lot of money. Below are some common and uncommon deductions that small business owners should not only be aware of, but should seek to better understand this tax season, in order to improve their cash flow and overall financial situation.
Office expenses (even the type of work from home!)
While many freelancers and entrepreneurs know they can claim rent as a business deduction (whether for office space or even just an office in a coworking space), this tax season, more and more homeowners companies have homes that double as workspaces.
According to IRS Publication 587 (Business Use of Your Home), some business expenses are tax deductible for home offices, but it’s important to distinguish between the basic costs of running a business, personal rent and utilities. Although they may overlap, they are two entirely separate deductions and should be treated as such when completing the required documentation. Some expenses contractors can consider including are utilities (heat, power, water, internet, etc.), maintenance, mortgage interest, property taxes, and home insurance, all of which are considered expenses. deductions for business use of the home.
That said, before rushing to deduct all those expenses, business owners should make sure their home office meets IRS requirements: the office is regularly and exclusively used and is the primary location of the company. Accountants should seek to help clients understand this separation more than ever in a year when the lines between home and work have become even more blurred.
Legal and professional fees
Legal deductions are more relevant than ever in a year when many small and micro business owners have flocked to professional legal advice amid pandemic uncertainty. Have they sought advice from a lawyer to start their business or to understand government bailouts in the event of a pandemic? If so, they can probably claim those professional fees as a deduction.
Consultant fees for outside professionals like lawyers and accountants, membership fees for professional organizations, and even fees for business books, industry publications, and online subscriptions are all areas where business owners can look for unexpected deductions this tax season.
No matter how efficient a business is, many small businesses end up with a significant amount of “bad debt” every year. A bad debt is essentially any liability that a business owner cannot collect, and for many micro businesses it often means bills that customers simply won’t pay. In fact, a Wave study found that 70% of microbusiness owners wait between one and six months to get paid, and 25% wait more than a year or don’t get paid at all.
Depending on whether you sell goods or services, bad debts that business owners can claim include funds you have loaned to employees, vendors, or other businesses, as well as the costs of overdue goods or services. or unpaid.
Office supplies and tools
Running a business means an immeasurable amount of supplies to maintain a functioning office or workplace. As a small business owner, buying certain tools is a no-brainer – think pens, notebooks, stationery, computers, monitors, desks, chairs, phones, printers and all the other little things that take up space in your workspace.
While individually some of these items may seem inexpensive, small costs can add up to serious savings when it comes to deductions on the year-end return. Some obvious and less obvious supplies included in this category include pens and pencils, stationery, staplers and paperclips, daily product shipping, courier costs, and cleaning supplies.
As entrepreneurs seek to navigate a particularly complicated tax year, minor deductions may be key to their small business’ survival. By recognizing returns at all levels, businesses can access greater cash flow and increase their prospects for future success. This list is just the tip of the iceberg when it comes to reducing the year-end tax burden, but with a deeper dive and categorical preparation, business owners can emerge with more confidence. money than expected this tax season.