Each tax season, small business owners across the country are filled with a sense of dread. While you may have wisely set aside funds throughout the year to cover your tax bill, the amount that you owe may still come as a shock. Unlike large corporations, every cent truly counts when it comes to small businesses. To ensure that you are making the most of available deductions to reduce your tax bill, consider the five most commonly overlooked small business tax deductions:
1. Home Office
If your small business is operated directly from your home, you are likely already aware of the home office deduction. However, many business owners do not realize that even if you have a brick-and-mortar location separate from your home, your home office may still qualify as a business expense deduction. If your home office is used exclusively for purposes related to your business, including accounting or other necessary tasks, you can deduct these costs. To calculate the deduction, you will need to be prepared with the square footage of your total home as well as the office space.
2. Self-Employment Taxes
Self-employment taxes for small business owners can be costly. These taxes, owed to Social Security and Medicare, are determined by taking your annual personal income into account. Fortunately, one-half of the taxes owed to Social Security and Medicare are deductible on your personal tax return.
3. Advertising Costs
Advertisement is crucial to the success of many small businesses. Whether you rented a billboard, printed flyers or paid to advertise online, these expenses are deductible. For more unique advertisement strategies and the costs associated with them, be sure to consult a tax professional to determine whether the costs are considered ordinary or necessary for your business.
4. Bank Fees
Banks are known for charging fees for everything from ATM withdrawals to monthly maintenance fees. While a small fee here and there may not seem like much, you may be shocked by the amount of fees you paid throughout the year. If your bank account is used exclusively for business, you can deduct many of these typical fees as a business expense.
5. Business Meals and Entertainment
In the event that your business has required you to wine and dine potential clients, be sure to save the receipts for each outing. Many find that it is helpful to make a note of what the meeting entailed and record it on the back of the receipt. If you have receipts and can provide adequate information regarding the meeting, you can deduct 50 percent of the total bill as a business expense.
By carefully examining your eligibility for these commonly overlooked small business deductions, you can significantly decrease the amount of your tax bill this tax season. If you are unsure if you qualify for any of these deductions, be sure to consult a professional for advice that is specific to your situation.