As the year is quickly coming to a close, it’s probably safe to say that not many people will miss 2020. However, no matter what this past year has thrown your way, tax season is still around the corner. If you’re a small business owner, you know how important it is to claim every available tax deduction. Not doing so could end up costing you big – possibly even the ability to keep your company afloat!
While tax deductions are simple and easily identified, others are either lesser-known or potentially very complex. These are the deductions that many small businesses either overlook or avoid. However, they can make a profound difference in the results of their revenue each year. As a payroll company providing payroll services to clients all around New England, abc Payroll would like to help spread the word about five commonly-missed tax deductions that your business may qualify for.
Home office expenses
First on the list is home office expenses. This deduction is quite simple to understand at first glance, but it can be quite complicated, depending upon how you claim it. There is a simplified method and the standard method. Both methods apply to housing expenses used exclusively for business purposes.
The simplified version allows you to deduct $5 per square foot of the space utilized for business purposes, with a maximum of $1,500.
The standard method allows one to track itemized expenses, including maintaining your home, utilities, real estate taxes, association fees, and repairs.
Startup company expenses
Next is startup expenses – one of the most commonly missed deductions within the small business community. Advertising fees, travel and transportation costs, consultant fees, training costs, legal fees, even employee wages are all possible expenses that can be claimed under this deduction. These expenses typically fall into two categories: startup costs and organizational costs. Each category cannot exceed $5,000. However, this deduction is only eligible for those with $50,000 or less. If your startup costs are over $55,000, the eligibility is completely removed.
Company vehicle expenses
If your vehicle is used for business purposes, you can deduct costs associated with business-related usage. Again, there are two methods for claiming this deduction. The first method calculates mileage. In 2020, the standard rate is $0.57.5. Multiply the actual miles driving by this amount to obtain your deduction.
The second method involves tracking all costs – gas, repairs, insurance, payments, and registration – for the entire year. Once a number is obtained, multiply by the miles driven to get your deduction. However, it’s crucial to know that this second method is available only to those who use the vehicle exclusively for business purposes.
If you’re a startup, you’ve probably already realized the importance of advertising and promoting your new business. Although these costs can quickly add up, they are 100% deductible. Whether designing a company logo or running a social media ad campaign, be sure to save copies of all efforts.
Legal and consulting fees
Finally, expenses incurred from legal or consulting fees, defined as “ordinary and necessary” by the IRS, are deductible within the same tax year in which they were paid. Common examples include tax preparation fees and license/regulatory fees.
There you have it, the five most commonly overlooked deductions that small businesses fail to take advantage of. At abc Payroll, a premier provider of payroll services, we hope that this advice may help business clients achieve a better tax outlook this year and on into the future. As always, your financial obligations and exemptions are best left in the hands of professionals.
For trusted advice this upcoming tax season, contact our team at 978-251-3003 today!