If you had a side hustle, or any size of small business in 2021, the last thing you want to do is leave any possible tax deductions on the table.
It’s never to late to comb through your credit card statements, bank statements, even Venmo or Paypal to look for any expenses that could be a valid write-off for your business in 2021.
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.
Here are my Top 5 tax deductions that should be maximized on every small business owner’s tax return…while…and this is important: finding a balance with your overall income and expenses based on the type of business or industry.
Don’t get greedy. If you only brought in $20,000 in sales in your on-line business, you probably don’t want to try and write-off $10,000+ in mileage, but you will certainly have some larger than average online marketing costs. Conversely, if you’re a realtor however, you’re going to have thousands dollars in miles to write-off and probably not as many online marketing expenses. advertising expenses. Bottom line- think of the type of business you have and what the big expenses should generally be and try not to look outside of the ‘norm’.
1. The Travel expense
In my opinion, this is one of the most underutilized tax deductions by small business owners today! A business owner can write-off 100% of all their airfare, hotel, rental cars, valet, taxi, Airbnb, Uber, trains, tolls, etc… when traveling for business.
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, attending a training meeting, or conducting a tour of a competitor’s facility or store.
Not to mention, one of the best and truly valid travel expenses, and this holding your annual board of directors, shareholder, manager or member meeting, for your Corp OR LLC. Check out my article here “Setting up Your Board of Directors or Advisors”. It just doesn’t make sense for any business owner to not have some travel expenses.
2. Auto, Truck or SUV Deductions
Remember the Auto expense IS NOT travel, but expenses for your car or truck used in your business. There are two main options: mileage or actual expenses, and it’s critical you choose the proper method for your vehicle and type of business.
Since 2018, under the new Tax Cuts and Jobs Act, the write-offs for autos, SUVs and Trucks have never been better!!
For 2021 the mileage deduction was 56 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 Food Expense
Due to the tremendous damage to the restaurant industry during the Covid Pandemic, before President Trump left office he signed into law the 100% write-off for dining out!!
Yes…that’s right! In 2021 and 2022, business owners incurring a valid business meeting out on the town or ‘take out’ (supporting a local business for preparing food), can write-off 100% of the dining expense.
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 this 100% deduction is for ‘prepared food’ by a restaurant for a valid business meeting, OR while a business owner is traveling for business. The water cooler, coffee and treats in the office picked up at the grocery store are still limited to a 50% deduction.
This again, is 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. 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. Here is an article that goes into more detail: “The Truth about the Home Office Deduction”.
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.
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.
It’s not to late to comb through every record for 2021 you can find in order to maximize these 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.
And for those of you that are still a little nervous to take these or ANY other valid tax deduction, there are certainly ways to avoid an audit and still maximize your write-offs. See my article “Top 10 Ways to Avoid an IRS Audit”.
* 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 PodCasts “The Main Street Business Podcast” and “The Directed IRA Podcast”, and the author of “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”, as well as several other well-known books. He is also the CFO of Directed IRA Trust Company, and a senior partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP, and the accounting firm K&E CPAs, LLP.