Which Business Deductions are Available as a Small Business?

business deductionsMany new small business owners wonder about which business deductions are available to them. If you are one of those business owners, this guide will help clear the mysteries as to what you can and cannot deduct on your tax return.

As for the costs that should be tracked, a simple way to look at this is like this: any expense you incur because of your business (within reason), is deductible. In your case, the obvious expenses are materials you purchase for your customer’s jobs, small tools, and supplies, subcontract labor, payroll for employees, etc. Other not so obvious expenses could be:

  • Insurance (general liability, workers’ comp)
  • Office supplies
  • Travel – easiest is to track your miles and reimburse yourself for miles multiplied by the standard rate. Deductible mileage includes travel to customer locations, running errands, picking up supplies, travel to industry events, networking events, etc.
  • If you maintain a home office, you should track your utilities for the home, homeowners’ insurance, and major repairs to your home (roofing, siding, painting the outside, water heater or A/C repair, etc)
  • Office supplies
  • The cost of your QuickBooks or other accounting software
  • Telephone (the cost of your first line into the home is considered personal)
  • Wages you pay to your employees, including family members.
  • Payroll taxes
  • Certain types of retirement plan expenses and contributions

This is not a complete list of business deductions but it should get you going. If you take into consideration my guideline that any expense incurred because of your business is deductible, you will likely cover most items.

As for tracking your expenses, there are two suggestions.

The first suggestion is to open a separate checking account to be used strictly for the business. If you need to use a credit card to make purchases, you should get a separate card for that too. By keeping all your business activities in accounts separate from your personal expenses, you will be more likely to have captured all of your business deductions than if you commingled funds. This alone probably results in capturing more deductions, than knowing which expenses to deduct.

The second suggestion is to obtain a copy of QuickBooks (or better yet get QuickBooks online) to record all of your business income and expenses, and religiously maintain the bookkeeping. It will make tax time much simpler, and will be an aid to doing tax planning, or projecting tax liabilities so you can properly make estimated tax payments during the year.

Steve Trojan is a CPA in Colorado and a Certified Divorce Financial Analyst. He owns Flatiron Advisors Tax and Accounting and also has the website Smarter Divorce Planning.

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