Not So Obvious Small Business Tax Deductions You Could Be Missing
Considering all of the information, receipts and files that business owners must gather in order to successfully complete their taxes, it's no wonder that tax season sends some of them into panic mode. Even more nerve-wracking is thinking you’ve taken every eligible deduction only to find out that, after filing, you might have missed something.
The best ways to make sure you’re aware of eligible tax deductions for your business is to consult with your accountant and remain vigilant in conducting your own research. With that said, let's take some of the burden off of the latter option with a list of a few less-obvious tax deductions you may be overlooking.
If you operate your business from your home and regularly use your home to entertain clients, meet with vendors or conduct other business that requires your home to be presentable, your lawn service expenses can be deducted. Other landscaping services, as well as costs for home improvements like driveway repair and energy-efficiency upgrades, may also be tax-deductible.
Keep in mind, however, that the entirety of these costs are not deductible. Instead, the deductible portion is based on the percentage of the home that is used for business.
It may seem counterintuitive, but there are some taxes you pay throughout the year that are also tax-deductible. The best example of this would be property taxes you pay your state for assets used to conduct business. These taxes would be considered a deductible business expense. Be careful, though, as these taxes are only eligible to be deducted in the year they’re paid.
In general, the four types of deductible non-businesses taxes are:
- State, local and foreign income taxes.
- State, local and foreign real estate taxes.
- State and local personal property taxes.
- State and local general sales taxes.
For a more in-depth look at deductible taxes and how to claim them, check out Topic 503 on the IRS website.
This is a major expense for many small businesses. Everything from print ads, to online ads, to billboards, to event sponsorships can be deducted, as long as there is a clear connection between the expenditure and your business. In the case of an event or festival sponsorships, make sure that the event’s materials reference your business as the sponsor, not an individual participant.
Unfortunately, some customers are unable to pay. If you have suffered a loss due to bad debts, these debts are also tax-deductible. Examples of deductible bad debts include:
- Loans to clients and suppliers.
- Credit sales to customers.
- Business loan guarantees.
Review IRS Tax Topic 453 for more information on how to deduct bad debts.
If you are repaying a loan to a bank or financial institution that is directly related to the starting or running of your business, this interest may be tax-deductible. Be aware, however, that there are certain types of interest that are not tax-deductible, such interest on loans used to provide money on a "standby basis."
In the majority of cases, interest on loans may be deducted if you meet the following requirements:
- You are legally liable for the debt.
- Both you and the lender intend that the debt be repaid.
- You and the lender have a true debtor-creditor relationship.
Deducting interest can get tricky, so it's best to refer to IRS Publication 535 or a tax professional for further assistance.
Pet Food and Training
This one is pretty rare, but if you have a dog that guards your business, a farm dog that herds or protects livestock or cattle, or you run a successful dog-breeding business, the costs for feeding, grooming and caring for your pet are all tax-deductible. Additionally, service dogs are also tax-deductible, but it must be for a medical condition.
While you may know that most healthcare expenses are tax-deductible, did you know that smoking-cessation programs or aids, as well as weight-loss or exercise programs are deductible too? In the case of weight loss, your doctor must sign off on your program and have stated that your life is in danger if you don’t start exercising and losing weight. Even bariatric surgery, as long as it's deemed medically necessary by your doctor, is tax-deductible.
Newspapers, Books and Magazines
Any of these periodicals or publications can be deducted as long as they are used for your business; this even includes the subscriptions you have for your waiting room. So go ahead and get that Wall Street Journal subscription you’ve been considering.
Rented Business Equipment
Like the rent for your business location, which is also tax-deductible, you can deduct the rent for any business equipment you lease. This may be especially helpful if you operate a restaurant and have rented some larger pieces of equipment instead of buying them outright.
Property eligible for business deductions can include:
- Tangible personal property, such as machinery and equipment, storage tanks, livestock, research facilities, etc.
- Agricultural or horticultural structures.
- Storage facilities.
- Off-the-shelf computer software.
- Qualified real property, such as leasehold improvement property, restaurant property or retail improvement property.
For a full list of deductible rental equipment and properties, as well as steps to claim these expenses on your taxes, see IRS Publication 946.
You know you need liability insurance, property insurance and more to successfully and legally run your business. But what’s even better is that most of these insurance policies are tax-deductible. However, not all of your insurance policies are tax-deductible, so it’s best to consult the IRS website to determine what is and what isn’t.
Keep in mind that because some of these deductions appear infrequently on returns, claiming them may send red flags that can trigger a tax audit. If you decide to take these or any other deductions, be sure to review them carefully with your accountant, and keep all of the supporting documentation for the required timeframe in case you ever need it to support your deductions. Happy filing!