One of the most painful things for me is leaving money on the table that I could have otherwise captured with a little bit of knowledge and effort. An area where a lot of small business owners do this is not taking advantage of some of the tax deductions that they are entitled to. Here are three deductions you might be overlooking.
- Extra Charitable Gifts.
I say extra because most people are careful to deduct their monetary donations to their favorite charities but oftentimes they forget the extra gifts. These extra gifts could be expenses incurred when doing work for a charity, whether personally or on behalf of your business. These expenses may be in the form of the time you spend doing the work for charity (the value of your time is deductible); the materials you supplied (the cost is deductible); or the use of your vehicle or company’s vehicle to and from or on behalf of the charity (the associated mileage is deductible at 14 cents per mile).
- Vehicle Expenses – The Uncommon Way.
Most business owners take the easy road when it comes to their vehicle expense deduction. This easy way involves taking the business mileage traveled and multiplying it by the IRS allowed rate, which is 57.5 cents in 2015. So as an example if you traveled 6,000 miles for business, then you would take a deduction of $3,450.
In some cases that could be a lot less than if you used ‘the uncommon way.’ With this method, you take your business miles, divided by the total vehicle miles for that year and then apply that percentage to all of your vehicle related expenses. Some of the expenses you would consider are gas & oil, other maintenance including tire changes, car washes, and anything for the improvement and upkeep of the vehicle. So let’s say that your total vehicle expenses were $8,000 for the year. Your business miles traveled is 6,000 miles and total vehicle mileage is 12,000 miles. Then you would take 50% for business usage multiplied by the $8,000 in expenses, which gives you a $4,000 deduction. In this case, the uncommon way is more beneficial.
Note: You cannot claim your commute to and from your office as business mileage. Also, if you work out of your home and do not claim a home office deduction, you now essentially make every trip from home a commute, which you cannot claim as business mileage. This takes us to the next deduction you want to be sure not to overlook.
- Home Office Expenses. This is available to any business owner who has a space in their home that is dedicated for that purpose, whether you own or rent. Statistics show that only 32% of eligible filers claim this deduction. If you are a small business owner and you use your home as your principle place of business, make sure you set up a dedicated home office space right away, even if it’s just a portion of a room. Why is this so important? The IRS requires this in order for you to qualify to deduct a portion of your rent, mortgage interest, property taxes, home insurance, utilities, home depreciation, repairs and maintenance, casualty losses, and security system.
Similar to the vehicle expense, there are two different ways to calculate your home office deduction and so it is important to make sure that your accountant is calculating it both ways to maximize your tax deductions.
These three deductions are just a small segment of what will be shared on my FREE webinar on Thursday, October 29th at 12:30pm, so be sure to register for this webinar at www.taxbreaks4u.com to attend the live webinar or to receive the recording. You can also contact me at firstname.lastname@example.org.
By Ranelli Williams, CPA, MBA (Co-owner at ERJ Services, LLC)