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June 25, 201949 Surprising Small Business Tax Write Offs You Might Be Able to Take
For many people, especially business owners, taxes are the primary erosion of your wealth. Taxes are a significant expense you pay from your income. However, the IRS has written an unbelievable book that gives you thousands of ways to reduce your tax liabilities. In fact, Chris Mahan, one of the principals at Mahan and Associates Tax Firm, says that “the Internal Revenue Code is the greatest wealth creation tool currently in the United States.” Sure, the Internal Revenue Code outlines what taxes you must pay. Yet, most of its content shows you ways to avoid paying taxes. So today, I want to dive into the IRC. I want to give you 49 surprising and possible tax write-offs for small business owners.
Podcast Time Index for “49 Possible Tax Deductions for Small Business Owners?”
- 03:24 – What is a Deduction?
- 04:56 – Qualified Business Income Deduction
- 05:43 – Bonus Depreciation
- 07:24 – Vehicle Expenses
- 08:24 – Home Office
- 08:50 – Home Renovations & Insurance
- 09:14 – Professional Services
- 09:23 – Employee Deductibles
- 11:13 – Opportunity Tax Credit
- 11:39 – Client & Employee Entertainment
- 12:42 – Dues & Memberships
- 13:06 – Legal Fees
- 13:16 – Office Building Deductibles
- 14:02 – Moving Expenses
- 14:18 – Home Landscaping
- 14:47 – Start-Up Expenses
- 14:52 – Travel Expenses
- 15:01 – Taxes!
- 15:14 – Machinery & Equipment Rental
- 15:24 – Interest on Loans
- 15:26 – Research & Experimental Costs
- 15:34 – Inventory for Services-Based Businesses
- 16:31 – Bad Debts
- 16:42 – Bank Charges
- 16:52 – Disaster & Theft Losses
- 17:05 – Carryovers from Previous Years
- 17:27 – Tools
- 17:54 – Unpaid Goods
- 18:07 – Continuing Education
- 18:19 – Advertising & Marketing
- 18:21 – Charitable Contributions
- 18:38 – Intangibles
- 18:45 – Some Examples of Unusual Deductibles
Tax Deductions
When I talk about tax write offs, I’m talking about tax deductions. So what are deductions? Well, a deduction is basically any expense that reduces your total taxable income. Any reduction to your taxable income reduces your tax liabilities. Yet, not all expenses are tax-deductible. The IRS actually says that the business expense must be “ordinary and necessary.” On its website, the IRS states, “An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” Therefore, we’re dealing with everyday, common-sense business expenses.
If you are in a business like I am where you’re consulting with people, then you’re probably not going to be able to deduct a ticket to the moon. Yet, if you consult with NASA, then the cost of flying to the moon could be a tax-deductible expense. Obviously, that’s an extreme measurement, but I’m sure you get the point. Basically, you can save a lot of money, more than you might think, by understanding the way tax deductions work. Therefore, let’s look at possible business tax write-offs you can claim that will legitimately lower your taxable income which will, in turn, will lower your tax liabilities.
But Before We Begin…
Please keep in mind that the information I’m giving you is not tax advice. Rather, it’s a list of tax deductions you might be able to take advantage of as a business owner. I am a CERTIFIED FINANCIAL PLANNER™, not a tax planner. Since I don’t know your individual circumstances, I don’t know if you can claim any or all of these tax write-offs. So be smart. Merely use this list to start a conversation with your tax professional.
Small Business Tax Write-Offs
#1 – Qualified Business Income Deduction
The first tax write off I want to deal with is perhaps the largest deduction that came out of the Tax Cuts and Jobs Act (TCJA) of 2017. The Qualified Business Income Deduction, or the QBI Deduction, allows qualified business owners to deduct 20% from their taxable income. What qualifies business owners? Well, you must own a pass-through entity: a sole proprietorship, an S corporation, a partnership, or an LLC taxed as a sole proprietorship or an S Corp.
For the purposes of example, let’s assume that you’ve already deducted all your different personal and business expenses, and you have $100,000 in net profit or taxable income. The QBI Deduction allows you to deduct an additional 20%. So you have $100,000? Now, you automatically knock that down by $20,000 to where you’re only paying taxes on $80,000. That’s a huge deduction!
RELATED READING: QBI Tax Deduction Offers New Savings for Small Business Owners
#2 – First-Year Bonus Depreciation
Another tax deduction that came out of the Tax Cuts and Job Act of 2017 is a first-year “bonus” depreciation that applies to depreciable business assets. Now, rather than depreciating qualified property by 50% the first year you obtain it, you can depreciate certain assets by 100% if you acquire them and place them in service after September 27, 2017, and before January 21, 2023.
So which assets qualify? Well, the IRS says that property like vehicles, computers, software, machinery, and equipment qualify for this “bonus” depreciation. Thus, in effect, you can now deduct 100% of your new business vehicle if it’s an SUV, a pickup truck, or a van that weighs more than 6,000 pounds. And it gets even better. For the first time (to my knowledge) you can depreciate the costs of USED vehicles, computers, software, machinery, or equipment by 100%. Prior to the TCJA, you would have to buy new assets to accept a tax deduction through depreciation. Now, you can buy new-to-you USED property and depreciate it by 100%.
For more information about the new depreciation guidelines, read the IRS’s article, New Rules and Limitations for Depreciation and Expensing Under the Tax Cuts and Jobs Act.
RELATED READING: The Tax Cuts and Jobs Act Brings Changes for Business Depreciation
#3 – Vehicle Expenses
The third thing you can do is deduct your vehicle expenses. In effect, you can take the standard mileage deduction, or you can expense your vehicle costs. As of 2019, the standard mileage deduction for business use is 58 cents a mile. Therefore, if you drive 1,000 miles in 2019 for work-related business, then you can get a $580 tax write-off. However, if you think you’ve spent more than that on vehicle expenses like gas, oil, maintenance, tires, registration, license, tolls, etc. during your business-related travel, then you might be able to bundle those expenses and deduct them. To determine which deduction benefits you more, be sure to talk with your tax professional.
#4 – Home Office Deduction
Number four is the home office tax deduction. Most people realize that you can deduct a percentage of your household expenses if use a portion of your home as a business office. Yet, working at your kitchen table some nights doesn’t mean you get a home office deduction. You actually need to utilize a specific room or part of your house for regular and exclusive business purposes. If your home is your “principal place of business,” the room’s square footage and certain home expenses like utilities, insurance, repairs, etc. count toward your tax deductions. Because the home office deductions are some of the more complicated ones in the Internal Revenue Code, though, I highly recommend that you talk to your tax advisor about which deductions are applicable to you.
RELATED READING: Tips to Know about the Home Office Deduction
#5 – Home Repairs
If you are taking a home office tax deduction, you may be able to expense some of your home repairs as part of that. Now, if you own a consulting business and you use the basement of your house as your home office, then upstairs kitchen renovations would not be tax-deductible. Yet, common repairs to your basement such as patching walls and floors, painting, mending leaks, etc could count toward your tax deductions. Additionally, let’s say you have to make repairs that benefit your entire home. You replace your home’s HVAC unit or replace the roof. If you use 10% of your home for your business, then you can deduct 10% of those repairs.
However, permanent home improvements aren’t necessarily tax deductible even if you operate a business from your home. Instead, the IRS applies general home improvements toward the basis, or the capital, of your home. Thus, those expenses count toward the depreciation or appreciation of your asset; you can’t count the expenses as yearly tax deductions.
RELATED READING: IRS Publication 587, Business Use of Your Home
#6 – Home Landscaping and/or Lighting
Along the lines of home repairs, I actually found a deduction that homeowners tried to take for their home landscaping. The wife taught piano lessons from the home, and the husband operated a financial investigations business out of the home. Over the years, they spent thousands of dollars in driveway repairs, landscaping, and exterior lighting. They claimed all expenses as depreciable capital asset expenses. However, in Langer Vs. Commissioner, the IRS said that the petitioners were not entitled to a depreciable deduction for home landscaping or driveway repair expenses. The IRS did allow them to take depreciable deductions for some of the costs of the low-voltage outdoor lighting system they installed, though.
#7 – Legal and Professional Services
Being a business owner doesn’t make you an expert in every field. Therefore, you need to call in the “professionals.” Personally, I recommend that every business owner have three to six different professionals on their advisory team. Most certainly, you need a CERTIFIED FINANCIAL PLANNER™, a CPA, and a tax or business attorney. Yet, I also recommend that you have an insurance agent, a banker, and a business coach that you trust on your team. You may even need to hire additional bookkeepers, analysts, consultants, or appraisers to help you in your business.
These advisors don’t work for free, though. They own a business or work for a business, and you must pay their company for their professional services. However, the IRS allows you to deduct business-related legal and professional fees from your taxes. That’s a win-win, folks. Not only do you get the help you need in your business, but you can also deduct the costs for the help from your taxable income.
RELATED READING: 6 Must-Have Professional Advisory Team Members for a Startup
#8 – Contract Labor
Some of the professionals you hire to work with your business will be contract laborers. In other words, you pay them directly rather than paying a business for the services they render. Yet, these individuals are not employees of your company; they are self-employed, independent contractors. Rather than paying them a salary or an hourly wage, you pay them a contracted fee for services, and you give them a 1099 at the end of the year. Thus, they are responsible for paying their own federal taxes, Social Security, and Medicare.
Contract laborers handle projects for your business. You hire them to help you create a website, write a blog, manage a marketing campaign, prepare your taxes, keep your books, apply for trademarks or copyrights or patents, paint your office, repair your roof, fix your plumbing, restore your lighting, etc. Just like the professional service fees you pay to accountants, attorneys, and advisors, the money you pay these contracted individuals is tax-deductible.
RELATED READING: Employee or Independent Contractor? Know the Rules
#9 – Employee Salaries, Wages, and Commission
Of course, you realize that employee salaries and wages are tax-deductible to you. Whether you pay employees an annual salary, an hourly wage, a commission, or a combination thereof, their gross W-2 earnings are deductible to you.
#10 – Employee Bonuses
Any bonuses you pay employees for special purposes are also tax-deductible to you and your business. You will withhold regular Social Security and Medicare taxes from bonus paychecks. However, employees may owe a higher percentage of income taxes for the bonus monies they receive. Therefore, work with your CPA, your bookkeeper, or the company that handles your payroll to make sure you deduct the appropriate taxes from any bonus checks you write.
RELATED READING: Tax Issues (and Solutions) When Your Spouse Receives a Bonus
#11 – Payroll Taxes
If you pay your employees W-2 earnings, you must deduct their federal, Social Security, and Medicare tax obligations from their paychecks. Upon deducting those expenses from employee paychecks, you must send the money to the IRS. Technically, it’s a cost to the employee from the IRS that passes through your company. Your employees, then, get to deduct those contributions on their taxes, not you.
However, the IRS requires employers to match employee Social Security and Medicare tax obligations. So if an employee pays $26.00 for Medicare tax and $131.00 for Social Security tax in a paycheck, you must pay the IRS a matching $26.00 for Medicare and $131.00 for Social Security. The good news is, those matching funds ARE tax-deductible to you.
#12 – Federal and State Unemployment Taxes
Besides paying Social Security and Medicare tax matches for employees, employers are responsible for paying Federal Unemployment Taxes (FUTA) and State Unemployment Taxes (SUTA) for each employee. Thankfully, all of the payments you make for employee unemployment taxes are tax-deductible to you as a business owner.
#13 – Employee Benefits
Employee benefits are also tax-deductible to you as an employer. Any costs you cover for employees’ sick pay, vacation pay, health insurance, dental insurance, life insurance, or accident insurance are tax write-offs for you as a business owner. If you use a Section 125 Plan – a cafeteria plan – that allows employees to choose benefits and pay for them using pre-tax dollars, you can also deduct the costs associated with setting up and maintaining that plan. For more information on the IRS’s allowances and exemptions for employee benefits, be sure to visit Employee Benefits.
#14 – Paid Family and Medical Leave
As part of the employee benefits package you offer, you may provide paid family and medical leave. According to the new legislation that passed in the Tax Cuts and Job Act of 2017, employers can receive a tax credit between 12.5% to 25% of wages paid during an employee’s leave. That a tax credit folks! Although it’s not a write-off, a credit reduces your taxes liabilities dollar for dollar, so I’ve included this in this list.
RELATED READING: Paid Family and Medical Leave Law Offers New Tax Credits for Employers
#15 – Employee Education Expenses
You can also take a business tax write-off for the costs of providing educational assistance to employees. There are a couple of catches, though. First, you must set up an employee educational assistance program according to IRC Section 127 guidelines. Second, the education employees receive must be related to your business. If you follow those guidelines, the money you pay for an employee’s educational expenses including (but not limited to) tuition, fees, books, supplies, and equipment is tax-deductible as an ordinary or necessary business expense.
#16 – Employer-Offered Retirement Plan Contributions and Costs
Not only are retirement plans a great way for you to attract and take care of employees, but they are also a way for you to reduce your tax liabilities. For example, any contributions you make to an employee’s plan are tax-deductible as a business expense. Additionally, you can receive a tax credit of up to $500 for certain expenses you incur to start and maintain the plan each of the first three years.
RELATED READING: Retirement Plans for Small Businesses – Which Should You Offer?
#17 – Employee Dependent Care Assistance
Most people have to work to pay their bills. Yet, many people have children, aging parents, or physically/medically impaired loved ones they take care of. Bringing dependents to work isn’t an option for most employees I know, but leaving them home alone isn’t plausible either. To solve this predicament for employees, many employers will set up a Dependent Care Assistance Program (DCAP). If you reimburse your employees for dependent care expenses or if you make payments to third parties for employees’ dependent care expenses, those expenses are tax-deductible to you as a business owner.
#18 – Work Opportunity Tax Credit
If you employ people from certain targeted groups – those who are underemployed – you can apply for a Work Opportunity Tax Credit. Veterans, ex-felons, summer youth employees, and SSI recipients are just some of the employees that make you eligible for this credit. Upon verification of the employees’ targeted group status, you must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit with your state workforce agency within 28 days after the eligible employees begin work. Then, you can receive tax credits between 25% and 40% of the first $6,000 in wages you pay those employees. That’s pretty big.
#19 – Business Owner’s Health Insurance
Earlier, I mentioned that you can deduct the costs you pay for your employees’ health insurance. But did you know that you can deduct your personal and family’s costs for health insurance, too? Whether you itemize or not doesn’t matter. You don’t qualify, though, if you or your spouse is eligible for an employer’s sponsored health insurance plan through another job.
#20 – Meals and Entertainment
Prior to the law changes in the Tax Cuts and Job Act (TCJA) of 2017, employers could deduct 50% of their expenses for business meals AND entertainment. However, the TCJA eliminated the tax deduction for business entertainment expenses. You can continue to deduct 50% of the costs of business meals, but if you have food and drinks during an entertainment event, you must pay for the meal separately to keep it deductible.
#21 – Dues and Memberships
Dues and memberships are also tax-deductible to business owners as long as the organization’s main purpose is professional in nature. For instance, you can deduct your dues to a local Chamber of Commerce that promotes business relationships and referrals. If you’re a medical professional, you can expense your membership dues to the American Medical Association (AMA), the American Dental Association (ADA), the American Veterinary Medical Association (AVMA), or whichever association to which you would belong. Dues for professional board memberships or business association memberships also qualify for tax write-offs.
However, you cannot deduct dues to organizations whose main purpose is to provide entertainment facilities for its members. In other words, you can’t deduct country club dues, athletic club dues, luncheon club dues, airline club dues, or hotel club dues. Technically, you can have a business luncheon meeting at a country club and deduct that business meal at 50%, but you cannot write-off dues to the country club.
#22 – Rent and Utilities
If you pay rent and utilities for the property and/or building in which you operate your trade or business, those are deductible expenses. If you happen to own the building in which your business is located, your business can even pay rent to you. Although that rental expense will be tax-deductible to your business, you would have to pay personal income taxes on the rental income you earn.
#23 – Mortgage Interest
If you purchase real estate property through your business, you can’t deduct your principal payments, but you can deduct your mortgage interest payments. Personally, I don’t advise my business owner clients to purchase property through their business. Sure, buying real estate can be a great investment, but I usually tell clients to buy it through their personal assets rather than through their business.
RELATED READING: Tax Write-off: Your Business Can Rent Your Home as Meeting Space
#24 – Property Taxes
Property taxes are also required if your business owns property such as a building or land. To determine the amount of tax you will owe, a local property assessor will place a value on your real estate and calculate your tax based on that valuation. Any tax payment you make based on the local assessor’s valuation of your property is tax-deductible to you.
#25 – Tangible Personal Property Taxes
Whether you own your business’s building or not, you own tangible property – property that can be touched and moved. Tangible personal property includes things like furniture, fixtures, equipment, machinery, computers, laptops, cell phones, phone systems, and the like that can be physically removed from your building but are necessary for you to operate your business. You must report the cost of your personal property to your local government, and the local government will then place a valuation on that property. If your tangible personal property exceeds a value of $25,000, you must file a tangible personal property tax return and pay the required tax obligations.
I’ll discuss the tax deductions you can take by purchasing tangible property later in this list, but for now, I want you to know that you can deduct property taxes you pay on your business’s tangible personal property.
#26 – Insurance Premiums
Another major expense business owners pay monthly, quarterly, or yearly is commercial insurance premiums. These include (but are not limited to) general liability, worker’s comp, commercial auto, property, casualty, professional liability/malpractice/Errors & Omissions, and cyber liability insurance costs. If you operate your business on an accrual basis, then you can write-off the entire billed expense the year in which you receive the invoice, even if you receive it in December. However, if you operate your business on a cash basis, then you can only deduct the premium payments you made in that calendar year.
RELATED READING: 7 Types of Business Insurance Start-Ups Must Have
#27 – Office Equipment
Generally, your office equipment will be the business assets you list on your yearly Tangible Personal Property Report. These items are usually long-lasting and cost a significant amount of money (more than $2,500). Essentially, office equipment is your furniture, fixtures, computers, printers, phones, electronic devices, and machinery. Equipment also includes any “off-the-shelf” computer software you purchase to conduct business like accounting software, KPI software, Point of Sale software, marketing software, etc.
Because the IRS classifies most of your office equipment as capital assets, you typically depreciate your costs for it over several years rather than claiming the entire expense for it the year you bought it. However, in 2019, you can claim the first-year bonus depreciation I talked about in #2. Additionally, according to IRC Section 179, you can deduct up to $1 million of your costs for purchased or leased business equipment up to $3.5 million the year you purchase and use it.
#28 – Customized Computer Software
Sometimes, you need more than an “off-the-shelf” computer software program. Your business needs are so unique that you must-have business software created, re-designed, or re-purposed just for you. If your software modifications cost more than $2,000 or more than 25% of the price of the “off-the-shelf” software, you must depreciate your costs over a three year period. You cannot expense the entirety of those costs the year you incur them.
#29 – Office Supplies
You don’t have to worry about Bonus Depreciation or IRC Section 179 rules for consumable office supplies. You will always expense the costs for supplies the year you purchase them. These items include supplies like printer paper, printer ink, printer toner, note pads, sticky notes, staplers, staples, pencils, pens, paper clips, envelopes, etc. You can also write-off the costs of consumable supplies you use to run machinery in your business. If you need drill bits for lathes, blades for saws, cassettes for x-rays, or things like that, you would count those as tax-deductible business expenses.
#30 – Tools
Tools that cost less than $2,500 don’t usually qualify as office equipment. And while their replaceable parts can be considered office supplies, the tools themselves aren’t really office supplies either. However, if you purchase tools for your business, you can write-off that expense on your taxes. Think about this, too. A tool doesn’t have to be a hammer, a screwdriver, or a saw. You could own a bakery and need baking sheets or mixers. Those are tools of your trade. If you own a cleaning business, vacuums and mops might be your tools.
#31 – Repairs and Maintenance
Routine repairs and maintenance to your business’s property and equipment are immediately tax-deductible. Anything you do to keep your equipment in operating condition counts as maintenance and repairs. This could include oil changes in a company vehicle, HVAC unit repairs, plumbing repairs, electrical repairs, etc.
However, some business owners make significant improvements to their office buildings by doing renovations. They strip up old linoleum flooring and replace it with tile. Perhaps, they take out walls and restructure their entire office space. Other business owners re-purpose old our out-dated equipment and make it better or worth more than it was. Rather than expensing those repairs, you would need to capitalize your costs and depreciate them over several years.
#32 – Cost of Goods
Products you purchase for resale or to produce resellable items are considered tax-deductible. However, the calculation to determine your Costs of Goods Sold each year is fairly complicated. Technically, you cannot expense product costs until you sell the products, and inevitably, you will always have leftover inventory at the end of each year. So to calculate your yearly tax deductions for COGS, you would add any inventory purchases you made throughout the year to the total value of your beginning inventory (any merchandise you did not sell the previous year). At the end of the year, you would subtract the costs of any unsold inventory from the sum of your beginning inventory and your additional purchases.
Here’s what that calculation looks like:
(Beginning Inventory + Inventory Purchases in the Year) – Ending Inventory = COGS
Although your calculated Costs of Goods Sold goes into your tax-deductible business expenses, the merchandise left in your year-end inventory may offset that tax write-off because it counts as “current assets” on your company’s balance sheet and Profit and Loss Statement. Therefore, you want to work with a good tax advisor who can help you balance your COGS and your leftover inventory.
RELATED READING: How to Read Your Company’s P&L Statement
#33 – Inventory in Service-Based Businesses
Most retailers follow an accrual-based accounting method. In other words, they recognize revenue and expenses when they are earned, not necessarily when money changes hands. Thus, they do not recognize the costs of merchandise until the merchandise is sold. That’s why retailers usually claim COGS and inventory asset valuations as mentioned above.
However, many service-based businesses use cash-based accounting methods. In other words, they recognized revenue and expenses when money actually changes hands. But service-based businesses will often have inventory on hand. Let’s say you own a dental practice. Most patients pay you for services you render like dental cleanings, tooth fillings, crowns, etc. However, you may also sell teeth whitening products or highly concentrated fluoride toothpastes. Since you claim your income and expenses immediately when they occur, you don’t have to calculate COGS and determine inventory assets leftover at the end of the year. Instead, you can treat any inventory costs as supply costs and deduct them immediately.
#34 – Loan Interest
If you take out a loan to purchase machinery or equipment or to make office improvements, the interest you pay to the lending institution is tax-deductible. You’ll want to follow the guidelines I talked about in #s 27 – 30 to deduct the actual costs of the machinery, equipment, or improvements. However, you can take additional tax deductions for any loan interest you pay on business-related loans.
#35 – Cleaning Supplies and Janitorial Services
Maybe you pay for cleaning products or janitorial services. Those expenses are a tax write-off to you. Whether the cleaning expenses are included in your rental fees or you pay a separate company to clean your office or business, those fees are tax-deductible to you.
#36 – Business Start-Up Expenses
Generally, most costs you incur to start or buy a business are considered capital expenses rather than ordinary business expenses because they are long-term investments you are making in your business. Therefore, the IRS says that you should amortize those expenses over 15 years. Although the IRS caps deductible start-up expenses at $50,000, it does allow you to deduct up to $5,000 of start-up expenses in your first year of business.
RELATED READING: Starting a Business Series
#37 – Moving Expenses
Let’s say that instead of starting a business, you’re moving your current business’s location. Any costs you incur to move your business’s tangible personal property and its inventory to a new location are tax-deductible. These costs could include payments to movers and to moving companies, purchases of boxes and packing material, truck rentals, fuel, and more. Additionally, if you move your business more than 50 miles from its original location AND you work in the business full-time, you can deduct your personal moving expenses.
#38 – Travel Expenses
Maybe you live in Tennessee and attend a trade show in Florida. Perhaps you live in California and must meet with a client in Texas. If you must travel away from your “tax home” for business-related purposes, you can write-off travel expenses. These expenses could include costs for transportation (plane, train, automobile, etc.), baggage shipping, lodging, meals, parking, tolls, dry cleaning, and more. If your employees travel for your business, you can also reimburse them for travel expenses or pay for their travel expenses and get tax deductions.
#39 – Research and Experimental Costs
As part of your business, you might incur costs related to product research and experimentation. If you create formulas, inventions, patents, pilot models, processes, or techniques that remove uncertainty about a product, those expenses are tax-deductible to you and your business as research and experimental costs. Purchasing patents, formulas, inventions, or the like from others may be tax-deductible to you but not as research and experimental costs.
#40 – Intellectual Property Related Expenses
You and your employees may not be creating formulas or patents. Yet, you’re creating material that you can trademark, copyright, register, or license. Just as you would pay to protect products, you pay to protect your intellectual property. Any fees you pay to secure those trademarks, copyrights, licenses, registrations, etc. are tax-deductible to you.
#41 – Bank Charges
Although I don’t think banks should charge fees, their fees are tax-deductible to business owners. Types of bank charges you might see are cash deposit fees, late fees, merchant service fees, credit card convenience fees, online banking fees, etc.
#42 – Loss from Disaster or Theft
What if a natural disaster like a tornado, flood, or hurricane destroys your office or store and the property or products in it? What if people steal your equipment or your products? Sure, if you have the proper insurance in place, you should receive money to rebuild or to purchase new supplies or merchandise. However, the insurance claim money you receive may not reimburse you for your losses. Thus, you would claim those losses as a capital loss on your taxes.
#43 – Carryover Losses
Speaking of capital losses, you can ‘carryover’ capital losses from previous years. Maybe you’re implementing a tax-loss harvesting strategy. Perhaps you lost everything in a tornado. If your capital losses exceed your capital gains, you can claim up to $3,000 of those capital losses each year. Thus, if you have a capital loss of $15,000 in 2019, you would claim $3,000 of losses over the course of five years.
RELATED READING: Minimize Capital Gains Taxes to Get a 0% Tax Rate
#44 – Advertising and Marketing
Advertising and marketing costs are relatively simple business expense deductions. Do you spend money on radio or TV commercials, billboard advertisements, coupons, Facebook ads, website content, signage, etc.? Those are all considered ordinary and necessary business expenses. Therefore, they are tax-deductible to you.
#45 – Continuing Education
Continuing education is one of my favorite business expenses. I love to learn. I want to learn everything I can about what I do. Lawyers, doctors, nurses, dentists, dental hygienists, CERTIFIED FINANCIAL PLANNERS™, and other professionals must complete so many continuing education (CE) hours each year to maintain their licenses or certifications. The IRS says that you can deduct these education expenses if they are required for you to “keep your status or occupation” or if they help you “maintain or improve your job skills.”
#46 – Charitable Donations
If you give a gift to a charity through your business, you can create a tax write off. The IRS allows you to deduct the costs of supplies, money, property, or other assets that you donate to charity. However, you don’t get a tax deduction for the time you donate to charity. No matter how valuable your time is to billable clients, you can’t deduct hourly earnings from the time you spend doing charitable work.
#47 – Bad Business Debts
The IRS classifies bad business debts as loans to clients, suppliers, distributors, and employees, as credit sales to customers, and as business loan guarantees that you can’t collect. To deduct this type of bad debt, you have to have included the amount in your income or loaned the amount in cash. If your business is cash-based rather than accrual-based, you generally can’t deduct bad debts because you never included the amounts in your income.
#48 – Business Animals
Did you know that you can actually deduct animal food and care expenses if you use animals for business purposes? Now, obviously, you can’t write off Fido’s vet bills if he’s your personal pet, and Scruffy’s cat food isn’t tax-deductible to you if she just keeps your family company. However, I’ve heard of a case where a junkyard owner bought cat food to attract local stray cats to keep the mice away from his junkyard. The IRS said that was an ordinary and necessary business expense in his line of work.
Similarly, you can deduct dog food and health expenses if you use guard dogs to protect your business and its property. When I owned a landscaping business, people would come into the nursery at night to steal from us, so I put my English Mastiff to work in the nursery as a guard dog. Thus, I was able to deduct costs for his food and care. Now that I work in an office building, I obviously can’t claim a guard dog as an ordinary and necessary expense. But if I owned a business where my products, merchandise, or equipment sat unprotected outside, you better believe I could put a guard dog to work!
#49 – Animals for Breeding Purposes
Now, I’ve saved the best for last because this one blew my mind. You can deduct animal food and vet expenses if you breed animals as a business. Okay, that makes sense. But you can also depreciate your costs for the animals as capital assets. An ostrich farmer in Louisiana depreciated his ostriches, and the IRS allowed it as long as he used the ostriches for breeding purposes.
So here’s where that could go. Let’s say you have certain animals, and you’re in the breeding business. Obviously, their breeding life isn’t going to be as long as their life expectancy. Thus, you can depreciate your breeding animals. This is actually done in the cattle and horse businesses often, and I know dog breeders who use this tax deduction as well.
Conclusion
So there are 49 different small business tax write-offs you might be able to take. I give you this information because the IRS gives you all of these crazy rules and court rulings that allow you to reduce your tax liabilities. As a business owner, you have more allowable deductions than others who are not business owners.
However, you need a rock star tax advisor to help you sort through all of the Internal Revenue Code rules and IRS rulings. Most people in the tax world know how to fill out tax forms, but that’s not what you’re after. You need a tax advisor who comes to you with ideas about how you can reduce your tax liabilities. You need an advisor who can quantify or provide case rulings to prove that these are legitimate and necessary deductions for you and your business. If you don’t have that, you’re missing out because taxes are the number one robber of your wealth.
