What Are Commonly Missed Tax Deductions?
Small business owners often miss some of the tax advantages they are entitled to. I was chatting with my husband who is a financial advisor and he was sharing the deductions that even some CPA’s have overlooked. This felt so important to me I had to instantly blog about it. My knowledge in this area had been week so I used the information I got from my husband (MeLevine@FinancialGuide.com) as well as an article I found at http://www.lifehealthpro.com/2015/04/06/5-overlooked-tax-deductions-for-small-business-own.
Now, this first one I have been aware of since running several of my businesses from home including my business mentoring services. If you have a designated room or space in your home where you are dealing with your clients, customers or patients and that space is used solely for the purpose of conducting business and nothing more, then this qualifies as a home office and you are entitled to a tax deduction.
Now, let’s remember that I am proving you business ideas, tools & resources here and not tax advice so do check and confirm with your own advisor. I do know from my own personal and professional experience that my home office which is used 100% for client work and nothing else is deducted. Only the expenses for this part of my home is deducted. This means when I paint my office (not my entire home), that part of my home can be deducted. I know the exact square footage of the space of my home office and I also know what percentage of my entire home’s square footage my home office takes so that my indirect expenses, for example, general repairs and utilities, are deducted based on the percentage of space my home office takes.
If you use your car for business you may be able to deduct the costs of operating and maintaining your car. You can either deduct the mileage for each mile your car is used for business or you can deduct your actual car expenses for the year. Car expenses included car payments or lease payments, tolls, oil, gas, insurance, parking, repairs, maintenance, registration, etc. which include gas, oil, tolls, lease payments, insurance, parking fees, registration fees, repairs and tires, according to the IRS.
A client of mine today asked me if I knew what he should do because he was using his car for business as well as personal use. I called my husband to inquire. He told me the same thing the article I referenced earlier in the blog post said. Divide the expenses for the car based on the mileage used for personal and the mileage used for work. So, just keep a careful record. A careful log. One for business and one for personal.
The thing every small business owner hates talking about, right? Bad debt. Having owned many businesses I’ve been there, too. We do encounter customers, clients, patients that we just can’t collect on. You can choose to see that as a total business loss or you can see it as a potential deductible expense.
The IRS definition of bad debt is “debt that was created or acquired in your trade or business, or closely related to your trade or business, when it became partly or totally worthless.” Examples can be money you are owed by clients who don’t pay, vendors, who don’t pay, employees who owe money or partners who owe money. As long as you have tried to collect on the money for a “reasonable period of time” and you document your attempts and you also have taken “reasonable steps to collect the debt but were unable to do so,” the IRS says the debt becomes a deductible expense.
Go see your accountant today! I’ve given you some of my business ideas, tools & resources and now you need to get some pointers from your accountant. Here’s what you need to bring with you and you also might want to print out this blog post and in advance share it with your tax advisor.