Even though 2019 has come and gone, it’s time to gather your records and file your tax return. As such, I want to encourage business owners of S-Corps, LLCs and Sole-props to comb through every record they can to maximize their deductions.
If you have QuickBooks you may think you have already tracked every possible expense, but think twice. You might be missing something. Start putting together a spreadsheet and go through credit card statements, bank accounts, PayPal accounts, receipts and anything you can to add up legitimate expenses. This is a critical time of year to try and dig up all the expenses we can from last year in order to drive down our tax bill as low as possible.
If you have been to one of my Workshops in the past couple of years, you know there are several standard, tried and true write-offs that can have a big impact on saving you taxes on your business tax return. Get a recording of my last Business Owner Workshop for only $99 here.
I truly believe that far too many business owners, CPAs and Tax Preparers are overly conservative and miss out on important expenses that we are entitled to. Don’t be afraid and look for ways to support an expense even if your records aren’t what you hoped. There are ways to avoid an audit and still maximize your write-offs. See my article “Top 10 Ways to Avoid an IRS Audit”.
Here are my Top 5 tax deductions that should be maximized on a business tax return to the greatest extent possible, while still trying to find a balance with the overall income and expenses of the business based on the industry.
1. Travel related expenses. In my opinion, this is one of the most underutilized tax deductions by small business owners today. Unlike meals and entertainment that are limited by 50%, travel expenses are 100% deductible. These include airfare, hotel, rental cars, valet, taxi, trains, tolls, etc… You would be shocked to know how many tax returns come across my desk every year of new clients with literally zero travel deductions. Consider all of your travels last year that may have involved a meeting with a client, a vendor, or a training meeting, a tour of a competitor’s facility or store, your annual board of directors, shareholder, manager or member meeting, a conference with retreat with a partner, the list goes on and on. It just doesn’t make sense for any business owner to not have some travel expenses.
2. Auto Deductions. Remember this isn’t travel, but expenses for your car or truck used in your business. There are two main options: mileage or actual expenses, and under the new Tax Cuts and Jobs Act, the write-offs for autos, SUVs and Trucks has never been better!! For 2019 the mileage deduction was 58 cents a mile. Surprisingly, again I see many taxpayers shy away from claiming their true mileage because they are afraid of an audit. True, you should do your best to keep a written record, but if you haven’t been extremely detailed, still utilize an estimate and take the deduction. I would rather see my client defend the deduction than not take it at all. As for ‘actual’ expenses, this has typically been best utilized with large trucks or SUVs, but not anymore! A business owner can now claim higher depreciation amounts on an auto, including a bonus amount, and it’s even better for SUVs and Trucks than it used to be. Here is an article with 7 “rules of thumb” on which method to use and how to maximize your deduction und the new tax law: “The Auto, SUV, and Truck Deduction: Mileage or Actual.”
3. Dining and Entertainment. Again, a highly underutilized expense by small business owners and should be a healthy line item on your tax return. Please make sure you consider all of your meals last year where you discussed business with a partner, or a potential client, vendor or strategic alliance. If you didn’t keep a receipt, still take the expense. Technically, you don’t need a receipt if it was less than $75, but you still should be able to substantiate it if necessary with a credit card or bank statement and the purpose of the meeting. Another overlooked fact is that you can write-off dining by yourself when you are traveling. This has been defined as outside of a normal commute of your home office or place of business and business owners should be diligent in tracking these expenses. However remember, although you are traveling, all dining and entertainment is still limited to 50% of the full amount. The biggest deduction for food that is for 100% of the cost is that of event food (or otherwise stated, food purchased for your attendees at a presentation you make). This also includes food purchased for your employees at the office. See my article “Writing off Dining and Food Expenses under the New Tax Law.”
4. Home Office & Office Supplies. Don’t be tricked into thinking the home office deduction is a high-risk audit item. It is not!! If you are entitled to it and don’t abuse the write-off, you are going to be fine. In fact, there is even a new simplified version and every small business owner should be utilizing some version of the home office deduction, especially if they have multiple business or even rental property. Every small business owner is regularly buying supplies and upgrading their phone, computers and digital reading devices. Don’t forget that when you have a small business, the majority of these items can be fully expensed. Make sure you track them and discuss with your tax advisor which expenses for items should be reduced by some percentage for personal use if necessary. Here is an article that goes into more detail “Maximizing the Home office Deduction.”
5. Technology and Telephone. This is obviously an ever increasing expense as small business owners utilize technology to do business nationwide, if not worldwide. Many also don’t know that recent case law and IRS rulings allow business owners to write-off 100% of their cell phone expenses, so long as they have at least one dedicated home phone line. Moreover, make sure to include the cell phones of your family members that work in the business alongside you and need a cell phone for their legitimate roll in the business.
Now with all of these expenses, you need to take into account your overall income, profit and the size of your operations. Your deductions need to look realistic and common for the type of business you have. However, if they’re legitimate and you have support, don’t be afraid to take them. Go for it and just have your records as back up if you need them in the future to justify your expenses.
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show “Refresh Your Wealth” and author of the new book “The and Legal Playbook- Game Changing Solutions For Your Small Business Questions: 2nd Edition”, and “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firmK&E CPAs, LLP.