Are you claiming all the income tax deductions you’re entitled to? Here’s a handy checklist for U.S. businesses that are structured as sole proprietorships, partnerships, or limited liability companies (LLCs).
The portion of your home that you use for an office can qualify you for a wide range of deductions, as long as that area is used exclusively and regularly for business purposes.
First, figure out the square footage of that area (the maximum allowed is 300 square feet). Then figure out what percentage that is of your home’s total square footage. That’s the percent you can deduct for home-related expenses including:
• Repairs and maintenance
As an alternative to itemizing these deductions, you may choose to take a standardized deduction of $5 per square foot of the area used for business.
Deduct insurance premiums on the company’s real estate holdings and equipment. If you work from a home office, you are eligible to take this deduction for your homeowner’s or renter’s insurance.
Medical Care and Insurance
As a self-employed business owner, you can deduct the premiums of your personal health, dental and long-term care insurance, as well as those of your spouse and/or dependents. But if your spouse’s employer offers a plan that covers you, you won’t be able to claim a deduction on any other plan.
Out-of-pocket medical expenses, such as doctor and hospital fees, in-home care, and medications, can be deducted on your 2018 return if they exceed 7.5% of your adjusted gross income. In 2019, that minimum goes up to 10%.
Child and Dependent Care
This includes the costs of hiring care for your children (age 12 or younger) and individuals (of any age) who are physically or mentally incapable of self-care. If you were working or looking for work while the care took place, these expenses are 100% deductible.
Real Estate Taxes
Any real estate taxes you pay to your state, city, and even another country are deductible.
Deduct the amount of interest you paid on:
• Business loans
• Business credit cards
• Mortgage loans to buy or improve your home or business property
• Home equity loans
• Money borrowed for investment (if the investment has more interest than income, you can carry forward the overage to next year)
You can also deduct bank fees and charges on business accounts.
Depreciation on Equipment
This deduction helps offset the cost of expensive equipment such as computers and vehicles. You can take the entire amount in the year you bought the item or spread it out over the years that you own it. Which is the better route depends on the expected life of the equipment and other factors; your tax advisor can help you make the right decision.
Energy Efficiency Improvements
You may be able to deduct 30% of the cost of alternative energy equipment in your place of business (including your home if you work from a home office), such as:
• Solar electric equipment
• Solar water heater
• Wind turbines
Salaries and Benefits
What you pay employees (other than the company’s owner, partner, or LLC member) is deductible. Wages, benefits, and even paid time off are included.
Telephone and ISP Charges
As long as you’re using these services for business, they’re deductible. If your phone and internet are used for both business and personal communications, you’ll have to document the percentage of business use.
For any vehicle used solely for business purposes, you can deduct 100% of the costs of operation. If you use your car for both personal and business trips, you must divide up the costs.
You can either itemize the actual costs of fuel, depreciation, registration fees, parking fees, etc. or take a standard mileage deduction (which is easier and maybe to your benefit if your actual costs are less than the standard rate). The mileage rate changes each year; for 2018 it’s $0.545 per mile.
Deduct 50% of business-related food and beverage costs. Be sure to keep receipts showing the amount of the expense, place, and date of the meal and business relationship of the person(s) whose meal you paid for.
A business trip that is ordinary, necessary, and far enough away from the tax home that you would need to sleep or rest before completing it qualifies for tax deductions. Allowable expenses include:
• Travel to and from the destination
• Shipping of baggage and work materials to the destination
• Taxis, car rental, parking and toll fees
• Lodging and meals
• Business calls
• Dry cleaning
Deduct 100% of the costs associated with increasing your knowledge and expertise that adds value to your business. These include:
• Classes, seminars, webinars and workshops
• Books and subscriptions to trade publications
• Transportation expenses to and from the education venue
Professional and Legal Fees
This deduction covers any consultants you hire in connection with running your business, including attorneys, accountants, tax preparers and advertising agencies.
Advertising and Promotion
These costs are 100% deductible. They include:
• Newspaper, magazine, radio, TV, internet and billboard ads
• Printing flyers, sales letters, business cards, and forms
• Postage costs for direct mail promotions
• Trade show entry fees or booth rental
As long as the contribution is made to a qualified organization, you can deduct this on your personal tax return.
For more information about tax planning and filing for small businesses, please consult your Xendoo team.