I just met with a client today that was scared to even claim their small business income and expenses. They actually had a ‘loss’ and increased their tax refund from last year by almost $2,500. But the fear of an audit brought them to meet with me.
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.
Bottom line, don’t be afraid to take the expenses you are entitled to. Do your best to keep receipts, credit card and bank statements, but always take the deduction!! I feel there is always a way to find support for an expense if an audit occurs. If it’s a legitimate business expenses- don’t fear!
With that said, as all small business owners know, 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 and TRIED AND TRUE areas of write-offs that can give you a big return on your time digging up expenses.
Here are 5 tax deductions that should be maximized to the greatest extent possible and will have a major impact on your tax return:
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 statistics show that 90% of small business owners actually utilize the mileage method. For 2014 this was 56 cents per 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 is for those typically with large trucks or SUVs. IF you were following my Newsletter in December you may have seen the special Bill and Extension passed by Congress that extended the 179 Depreciation deduction for trucks with a 6ft bed or greater, vans, delivery trucks and RVs. Don’t forget this opportunity as well if you purchased a vehicle weighing more than 6,000lbs in 2014. If this was you, do your best to track down your fuel, repairs and maintenance for last year if you used the ‘actual’ method.
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.
4. Home Office & Office Supplies. 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. Also, don’t be afraid of the home office deduction! There is 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. Here is an article that goes into more detail on this topic https://markjkohler.com/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.
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com.