Common Work Expense Tax Deductions
Whether you work in an office, remotely from home, or run a small business, claiming work expenses is a good way to reduce your taxable income and keep more of your hard-earned money in your pocket. Knowing what you can and cannot deduct in advance will help you keep track of your receipts, maximize your deductions, and create an easier, more expedited tax filing process when the time comes. To help you better understand how to fully maximize your profits, here are a few common work expense tax deductions for small businesses.
1. Business Meals
Small businesses can deduct up to 50% of qualifying food and drink purchases. To qualify, the meal needs to be directly related to business and specifically outline the cost, business relationship, and date and location.
2. Work-Related Travel
If you need to travel somewhere for business purposes, you can write off the airfare, hotel, rental car, necessary dry cleaning, and meals. You can also write off any work-related car use such as operation costs and maintenance if your vehicle is used strictly for work. To learn more about work-related travel deductions, check out this list.
3. Business Insurance
To safely operate your business, you’ll need a certain degree of business insurance. Luckily, you can deduct this on your tax return. If you have a home office, part of renter’s insurance or homeowner’s insurance can also be deducted as business insurance.
4. Business Interest
A lot of small businesses need to borrow money from the bank to get started, grow, or fund different business activities. When you borrow money, you’ll be charged interest. You can write off this loan interest on your taxes, as long as the loan was 100% used for business purposes. Always keep a detailed account of money used to avoid any problems with the IRS.
5. Home Office Expenses
While many of us have gotten comfortable working from home, it likely took a small investment to do so. If your small business is based in your home, you can write off a portion of your rent or mortgage. The same can be applied to phone and Internet services required to conduct business.
6. Office Supplies
Anything you use in terms of supplies and equipment that helps push your business’ bottom line forward can be written off as a business expense. This includes larger appliances like printers and fax machines or computers and software to smaller items like pens, post-its, tape, paper clips, and more.
7. Professional Services
If you need to hire outside professional services like a legal team or a certified public accountant, you can deduct the cost for tax purposes. Make sure you understand all of the guidelines and seek clarification if needed. Work related tax deductions also extend to any education that adds value to your business.
8. Employee Salaries and Benefits
If you’re paying your employees a salary, benefits package that include medical expenses, and vacation time, you can write them off as a work expense. The salaries need to be reasonable, especially when compared to your profits and operating costs, and the employee cannot be involved in the ownership of the company.
9. Charitable Contributions
If your business makes charitable donations and is designated as a corporation, you can claim your deduction on your corporate tax return. If you’re a sole proprietorship or LLC, you can claim charitable business deductions on your personal tax return. Make sure you speak with a professional if you need further clarification.
10. Energy Efficiency Expenses
You can be rewarded when you make upgrades to become a more energy efficient place of business. There are a lot of benefits to doing this, so take the time to further understand home energy tax credits.
11. Real Estate Taxes
You can include real estate taxes that are paid locally in your work-related expenses. The total of these deductions can equal up to $10,000.
12. Mortgage Interest
If you use your home for business purposes, you can partially write off some of your mortgage interest. You may also be eligible to utilize some of your commercial mortgage interest in work related expenses, so discuss this option with your CPA to see if it applies to you.
13. Client and Employee Entertainment
When you’re entertaining a new or existing client, you’re able to deduct the expenses of the event. This is only applicable when you and your client discuss business and the entertainment aspect may be limited to business settings. Social events such as mixers or networking events can also be deducted. The number of deductions available depend on the event and underlying reason for entertainment.
14. Advertising and Promotion
Anything you do to promote your business, including marketing campaigns, digital advertising, traditional print advertising, website improvements, ongoing maintenance, and more can be deducted as a work expense. Keep a thorough record of everything that you spend within each of these categories to avoid facing problems with the IRS later on.
15. Startup Expenses
Starting a business comes with a lot of expenses. If you’re planning to launch a startup, you can deduct up to $5,000 of your expenses that accumulate up until the day you launch your business. These expenses can include costs that help improve networking, marketing, training, and more. To get a full list of all of the startup expenses that can help maximize your tax refund, work with a Certified Tax Coach today.
How to Claim Work Expenses on Your Taxes
There are two different options for deductions when claiming work expenses on your taxes. You can either claim a standard deduction or an itemized deduction. While it’s important to keep your receipts and a record of your expenses throughout the year, itemized deductions are not always the best course of option for individuals or small businesses. Choosing to use the standard deduction means that you’ll receive a flat rate of tax deductions, without the stringent need for submitting receipts, paper trails, or explanations of use. Instead, the flat rate is simply deducted from your taxable income and that’s the end of it. This varies based on filing status. If you’re interested in learning more about how much your standard deduction will be, speak with a Certified Public Accountant (CPA) today.
Utilizing itemized deductions to claim work expenses on your taxes takes a lot more effort but could pay off in the long run—especially if your expenses exceed the standardized amount. You’ll need to show proof of every expense you plan to deduct. You can go through this process and if you find that the standardized amount is higher, you can choose to use the flat rate. For more information on claiming work expenses on your taxes, visit the IRS website.
If you’re still unsure how to maximize your deductions using common work expenses, consider working with a CPA or a Certified Tax Coach like the ones at Del Real Tax Group. We specialize in helping small businesses maximize profits and each of our accountants work to give you personalized service and attention. Our primary goal is to help you save thousands of dollars in taxes a year! See how we can help by contacting our office or calling us at 708-788-0082 today.
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