This post will break down expenses that are commonly mistaken as personal expenses, but are actually tax deductible business expenses. Making sure you properly keep track of your business expenses can save you thousands of dollars on taxes.
First you should choose an expense-tracking tool that works best for you. There are several online ones to choose from (Mint is a great one), this way you don’t have a huge pile of receipts lying around come tax time.
Good recordkeeping is a crucial step which will help you monitor your growth and spending, as well as help you differentiate between personal and business expenses. Keep a detailed record of your expenses, their purpose, and the receipts.
1) Business use of your home
The percentage of your home being used for your startup is the percentage of the expenses you can write off. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Learn more about getting a tax deduction for your home office here.
2) Business use of your car
In order to claim vehicle related expenses, you must keep a record of where, when, and why you used the vehicle. If your car is used for both business and personal reasons then you simply divide the expenses based on actual mileage. See if your vehicle usage qualifies for a tax deduction.
Good news for those who travel, your business trips are tax deductible! You need to keep a detailed record of your receipts, however, because the IRS gets suspicious of people trying to claim personal travel as business. The one exception here is you can only deduct 50% of your meals while traveling. Learn more about travel deductions.
4) Client Entertainment
Taking a client out to dinner is a great way of developing a strong business relationship. As long as the main purpose of the dinner, or other form of entertainment, was for business, you can document it with the receipt and a list of who attended. Learn more here.
5) Gift Receipt
If you give out business gifts, you can deduct no more than $25 for each gift you give. Giving a client concert or game tickets is considered a form of entertainment if you attend the event with them. Read more how to get gift deductions.
Taxes can be tricky. When claiming deductions make sure you pay attention to the details. If you’re not sure about something, make sure to get clarification from a valid source. Turbotax, the IRS website, or a CPA are all great places to go for answers.
Not everything is tax deductable. Make sure you’re not making some of these 8 wrong assumptions about tax deductions.
Starting a new business can be a headache, especially if you’re new to the financing aspects. Creating a solid budget, managing your cash flows, and keeping track of your expenses will make the process a lot easier and ultimately increase the profitability of your business.
Learn more about managing business expenses and startup accounting in our free ebook: The Ultimate Guide to Accounting For Startups.