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QuickBooks, a Salesforce partner, wrote this article.
If there’s one subject that gives almost every small or medium business (SMB) owner a headache, it’s taxes. But taxes don’t have to be the bane of your existence. As a member of the QuickBooks marketing team, I know with proper preparation and the right accounting software, you can file, pay all of your business taxes, and save money. Deducting business expenses can help make that happen.
Understanding how to save money on taxes can be tricky when changes to tax laws can also change deduction allowances. But when you run a small business, every penny counts. Here are some effective ways to determine what you owe this year.
For many small business owners, part of the struggle in doing taxes is itemizing deductions. Itemized deductions are business expenses that the IRS allows you to subtract from your gross income, reducing your taxable income. It takes a lot of work to account for all those deductions, and you have to keep track of your receipts throughout the year. However, the money you save can make the extra work worthwhile.
If you want to itemize deductions, know your deductible expenses should exceed the 2019 standard deduction. That’s $12,200 for single-person filing, $18,350 for head-of-household filing, or $24,400 for married, filing jointly. There are also a few reliable indicators you can use to determine if itemizing deductions is right for you.
You had significant out-of-pocket medical or dental expenses.
You paid interest or taxes on your home.
You had significant employee business expenses that were not reimbursed.
You had sizable out-of-pocket casualty or theft losses.
You made substantial charitable contributions.
If you decide to itemize, your next step will be determining which expenses are allowed as deductions. When it comes to your typical business expenses, some allowable deductions might be obvious. Business vehicle costs, employee wages, office supplies, and business travel are all common deductions for small businesses.
But some deductions are not so obvious. These can include small business insurance, costs for professional development, and interest collected on bank loans. You can even write off certain tax payments as business expenses. State, local, and foreign income tax and personal property taxes are some examples.
Launching your own business comes with a lot of uncertainty. One uncertainty is if you can deduct the cost of starting a business from the business’s taxes. Luckily, you can deduct many of those startup costs.
Startups can deduct up to $5,000, as long as the total cost to start that business was no more than $50,000. But you must gradually write off any costs over $50,000. Also, the IRS does not cover startup costs if you never opened the doors. Additionally, there are three categories eligible for startup deductions:
This category is broad but covers any expenses incurred to investigate, open a new business, or acquire an existing business. Expenses can include conducting market surveys or research, analyzing products, locating suppliers, researching labor supply, or visiting potential business locations.
These deductions are more focused on the tasks that led to you opening your doors. These can include costs for training new employees, advertising and marketing, seeking consultants or legal assistance, or traveling to visit distributors or suppliers. The only exception is equipment costs, which you can only write off in small portions. And if your business is home-based, you can write off your home office as a business expense.
This last category covers any costs accrued to set up your business as a partnership or corporation. These can include legal fees, filing and accounting fees, state organization fees, and some other costs associated with directors and organizational meetings. Your business has to have been incorporated within its first year to qualify as a deductible expense.
Saving money during tax season can be a huge win for your business. If you are unsure or have questions about filing taxes, speak with a tax expert to make sure you’ve covered all your bases. If you’re worried about an audit, the IRS suggests keeping all your records for at least three years, depending on how you file. For many business owners who use automated or AI-driven accounting software, those expenses and receipts are often saved automatically.
Itemizing your taxes can take time, but it will be well worth the savings if you qualify. Even if taxes give you a headache, you can put those savings right back into your small business.
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