Keeping Your Small Business Deductions Legitimate

Every dollar counts when you are working for yourself as an independent contractor or small business owner. At tax time, you will want to minimize your taxable income as much as possible by deducting eligible business expenses. For contractors and home-based businesses, the lines between legitimate small business deductions and personal expenses can sometimes be blurred. To help, we have put together some tips on some common expenses you can claim to reduce your taxes. As always, be sure to keep your records organized to make it easier for your tax preparer, and easier for you if the IRS asks for justification.

Professional Memberships and Industry Events

As a self-employed business owner, you probably belong to some sort of organization or group for networking, collaboration or ongoing learning. The costs of these memberships, along with the registration fees for conferences and events are legitimate business expenses. That doesn’t mean that you can claim your gym membership, but if you pay for a membership that either helps you generate business, or educates you in your field, it’s good.     

Marketing and Promotion

Money that you spend to promote or advertise your business, whether it consists of flyer distribution, Facebook ads, a new website, or even sponsoring a local kids’ sports team is a legitimate expense. Marketing can be a large cost for your small business, so make sure you take advantage of this deduction. 

Insurance

If you are self-employed you should have business insurance relevant to your line of work. In fact, it may even be required by law, depending on the nature of your business. You can claim all business insurance costs and may even be able to include a portion of your home insurance if you work from home, and automobile insurance if you use your vehicle for work. 

Other Home Office Costs

Everything that you need to run your home office including internet costs, electricity, heat, and even mortgage interest are eligible deductions for your tax return. The key is determining what reasonable portion of your housing costs are incurred in the operation of your home office. It may be tempting to claim that three-quarters of your house is used for work,  but ask yourself—if the IRS asked, could you back that number up with proof?

Be Realistic

Don’t guess at what things cost. If you want to claim your heating costs then take the time to find and total up your heating bills for the year. The same goes for things like transportation costs. Keep track of your mileage and claim the actual amount rather than guessing or using a nice round number to calculate your costs. Claiming that you spent exactly $12,000 on fuel last year, or that you drove exactly 8,000 miles is a flag that the number is estimated. That could cause the IRS to disallow those small business deductions.    

Keep Your Expenses Organized

As always, being organized at tax time will make the task of preparing your tax returns easier and faster. It’s easy to fall behind, but make it a priority to set aside a few minutes each week or month to organize your receipts and other documents to either file your returns on your own or hand them off to a tax preparer. 

Keep us in mind if you need tax preparation services. We are experts and can help you minimize the amount of tax you are required to pay and maximize any refund you may be entitled to. Give us a call at 248-691-6558 or contact us using the form below to ask about income tax preparation and filing for contractors and small business owners.