06 Jul Analyzing Business Expenses: Tax Deductions to Explore for 2020
Are you looking to get on top of your business taxes this year?
There are a number of simple and easy steps to help you navigate the confusing arena of business taxes. The easiest would be to hire a licensed “CPA near me” and have them manage all of your bookkeeping. OnTarget CPA helps hundreds of businesses and entrepreneurs every year.
A second method is a little more DIY. However, it can be done with a little “elbow grease.”
A good place to start is by keeping track of your business expenses. By keeping notes along with receipts of all your expenses, you may be able deduct them from your tax bill and possibly save money. Keep in mind that not every expense is tax-deductible.
We will outline a few types of business expenses you may qualify to use to assist in reducing your tax bill.
What Are Business Expenses?
Business expenses are essentially costs that you create simply by running your business. For example, a store would incur costs for rent of space and electricity bills.
Your expenses can fall under two categories; fixed and variable. Fixed costs are ones that don’t change, keeping your expenses the same month after month. Variable costs change month on month, such as the cost of stock top-ups.
You should always record your business expenses. Keep copies of receipts and invoices, so you have a permanent copy of where your money’s gone. When it comes to tax time, you may be able to claim these expenses back by deducting them from your net profit.
Although expenses can be a pain at the time when it comes to tax they can be very useful! But not all your expenses can be used for tax deductions.
Types of Business Expenses
There are many expenses you can use to reduce your tax bill. Make sure you’re keeping track of them by taking a look at these top deductions for small businesses.
If you use a car, truck, or van, you can deduct the cost of running it. You can either keep track of your costs (such as for gas and oil changes) or use the standard mileage rate that the IRS lays out. You do have to prove you’re using the vehicle for your business and remember to keep a record of the miles you’ve travelled. There are apps for this such as MileIQ that help. Be aware, however, that once you choose a method for your automobile, you must stick with that method until you no longer own that vehicle.
If you have employees, the salaries you pay them are deductible expenses. This also covers any bonuses and commissions, so keep an eye on what you’re paying out. Wages for partners, LLC members, and proprietors are not deductible.
Contract Labor and Freelancers
More and more businesses are using independent contractors or freelance workers to bump up their workforce. While these aren’t permanent employees, you may be able to deduct their pay on your expenses in certain circumstances.
Supplies You Use
Every business needs supplies in order to run. If you’ve bought supplies such as cleaning products, stationery, or laptops, these can all be deducted. Just remember to keep your receipts as a proof of purchase!
Rent for Your Business Property
If you pay rent for a property that’s solely for business, this can be deducted. This includes offices, storefronts, factories and more. Just make sure you can prove you use it for business purposes.
Business Use of Your Home
If you work from home, you may actually be able to deduct some of these expenses from your tax bill. These could include utility bills and mortgage interest. Take a look at the IRS publication on this for more information. There is more scrutiny for this so make sure to follow the IRS rules closely.
Utility bills such as for electricity can be fully deducted on your tax bill. This also applies for bills such as mobile phone contracts or car repairs if you use them exclusively for business.
Any business insurance bill is deductible. This includes business owner’s insurance, flood insurance, cyber liability coverage and malpractice coverage. For health insurance, note that you may be able to claim tax credits of up to 50% of the premiums paid. Verify this with your provider.
If you need to travel for work, you may qualify to deduct the cost of this from your tax bill. This includes transport costs, the cost of your lodgings, and baggage fees. To deduct this expense, you will need proof that the trip was for business, so make sure to keep clear records.
Advertising and Marketing
Advertising expenses are one cost businesses often forget to deduct, but in some instances you can. Your advertising can cover anything from traditional methods to social media campaigns. Keep a note of these expenses and verify current rulings through the IRS or a licensed CPA.
IRS Expense Categories
The IRS lay out the expenses that you can deduct from your net profit. With a detailed list, it makes it much easier to know what you can and can’t use to lower your tax bill as well as the qualifications for each one.
The IRS rules note that any expense you deduct must be either an ordinary cost in your industry or necessary to its performance. You should also be aware that business expenses don’t include the following three categories:
- Expenses used to work out the total cost of goods sold
- Personal expenses
- Capital expenses
If any of your costs fall under these, they normally cannot be deducted.
Keep an Eye On Your Small Business Deductions
Knowing the types of business expenses you can deduct from your tax bill is just the start when it comes to saving money! Now it’s time to record your spending, collect proof of your expenses, and deduct it when the time comes. There’s no doubt it takes a lot of organization, but the pay-off is well worth it.
If you don’t have the time to stay on top of your accounts, get in touch with our accountants at OnTarget CPA. Our business taxation and entrepreneurial services are designed to take the stress out of your tax returns and make sure we save you as much time and money as possible.
Call to Schedule a Free Consultation With an Indianapolis CPA Today
If you are the owner of a small business who wants to ensure that your business grows and succeeds, call to schedule a free consultation with an Indianapolis CPA as a CPA near me today. The experienced professionals at OnTarget CPA will evaluate your small business plan and help you identify its strengths and weaknesses. We serve the cities of Indianapolis, Carmel, Fishers, Noblesville, Westfield, Zionsville, Geist, Greenwood, Avon, Brownsburg, and surrounding communities. Check out our website at ontargetcpa.com or give us a call at 317-820-2000 and learn more about how a CPA near me who is an Indianapolis CPA an help you reach your business goals.