- December 7, 2018
- Posted by: Rivero, Gordimer & Company
- Category: Business Advice
Financially-conscious small business owners look for every opportunity possible to improve their bottom line. With tax season just around the corner, one of the smartest ways for small businesses to save money is to find and use all relevant tax deductions. From cell phones and internet to home-office space, there are several potential write-offs for your small business.
To qualify as a legitimate deduction under the IRS’s standards, an item must be a usual, necessary, customary, and reasonable expense for your industry or work. In other words, deductions must have a relevant application to your business.
With that in mind, let’s take a quick look at a few common expenses that small businesses incur and determine when it’s appropriate to deduct those expenses on your taxes.
Whether you’re running a business from your home or an office, small business owners are generally permitted to deduct the cost of internet access. Remember, you can only claim internet service as a business expense deduction if it’s ordinary and necessary in the course of business. That’s why some business owners won’t be able to deduct the entire expense of purchasing internet services if they work from home.
Often, home internet services aren’t exclusively used for business purposes, but for personal use too. In that case, you should estimate how much of the internet service is used for business purposes and prorate that cost to determine how much to deduct.
Small business owners may also deduct relevant online expenses such as web hosting fees, the cost to register and maintain a domain name, and other expenses related to running your company’s website.
Cell Phone Expenses
Cell phones are interesting because they can certainly be considered vital to running a small business — especially if you’re a solopreneur. However, cell phones are often used for personal affairs, too. The distinction between personal and professional use with cell phones is important for tax purposes, and it can be quite difficult to quantify when filing taxes. To avoid scrutiny over claiming cell phone use as a business expense, consider contacting a local CPA Firm to assist with your small business’s taxes.
If you’re self-employed and use your cell phone for business purposes, you are permitted to claim the business use of your phone as a tax deduction. The way you claim this deduction is not unlike the internet deduction described above.
If 50 percent of your cell phone use is for business purposes and the other 50 percent is for personal use, you are permitted to deduct half of your phone bill. Some experts suggest getting an itemized phone bill to substantiate the percentage that you claim. Alternatively, you can make tracking usage even easier by getting a second phone line that you use exclusively for business.
There is no shortage of entrepreneurs running successful small businesses from their homes. The lower overhead from working out of your home office helps you run a leaner and more flexible startup. If you are running your small business from a home office, you need to learn how to unlock the home office deduction on your taxes.
Similar to the write-offs above, to use the home office deduction appropriately, you need to distinguish between personal and business-related use clearly. This typically involves using a ratio of square footage of your home used for business purposes against the total expenses of living in your home (utilities, rent or mortgage, insurance, etc.).
To avoid miscalculations, it would be wise to contact a CPA with experience in home office deductions.
Running a small business can be expensive, and the government provides financial relief for many operational expenses in the form of tax deductions. To avoid leaving money on the table when filing your taxes, make sure you are finding every opportunity possible to write off relevant business deductions.
Because most small business owners are not privy to the nuances of business tax write-offs, it is a good idea to find a professional tax accountant who can help with tax planning and tax preparation.