This guest post is contributed by Cameron McCool, the Content Manager at Bench, the online bookkeeping service that pairs you with a dedicated bookkeeper and uses simple, elegant software to do your books for you.
Tax season is upon us. While we can’t help you escape your taxes, we can help you reduce your tax bill. Before you file your 2014 return, use this list to check that you’re claiming every small business tax deduction available. Please note that all these expenses (except those that specify otherwise) can be claimed on Schedule C (Form 1040).
You can’t run an ecommerce business without an internet connection, which means your internet bill is tax deductible.
If you work out of your home office and use your home internet connection, you’re expected to account for any personal internet use. For instance, if your family uses the internet connection after hours, you need to calculate the percentage of business-related use and apply it to the total. You can then claim the business-related percentage of your internet fees as a utility expense.
Costs associated with shipping goods to your customers are fully deductible. These include postage, shipping, and delivery costs, which can be claimed as “other expenses”.
Domain Registration and Web Hosting
Your website is likely the customer’s biggest touchpoint with your business. The cost of domain registration and web hosting are deductible as “other expenses”.
Apps and Services
Apps and services used regularly to run your business, such as ShipStation, Bench, and your shopping cart can be deducted as either “office expenses” or “other expenses”.
Home Office Deduction
To qualify for the home office deduction, you need to measure up in three areas: exclusivity, regularity, and precedence.
- Exclusivity: Your working area can only be used for your business activities. Ensure the space has clearly identifiable boundaries and include pictures for evidence.
- Regularity: You need to use your home office as the principal place of business. Have a regular and predictable schedule for using this space.
- Precedence: You must be spending the most time and conducting the most important business activities in your home office.
Earlier this year, the IRS introduced a simplified way of calculating the amount you can deduct for your home office. You can create a standardized deduction of $5 per square foot of your home that’s used for business, up to a maximum of 300 square feet. Deduct home office expenses on Schedule C (Form 1040). You’ll also need to fill out Form 8829 if you use the standard method.
Office and Packaging Supplies
As long as it’s an “ordinary and necessary” expense for your business, everything from the cost of pens to notebooks and padded envelopes are deductible.
Business Phone Calls
If you have a cell phone that’s used solely for business purposes, you can deduct the full cost of this phone bill.
If you use your cell phone for business and personal purposes, you can only deduct the amount used for business. If 50% of your cell phone bill is directly related to business, you can deduct 50% of all call costs. In case of an audit, be prepared to highlight business calls on your itemized phone bill to support your claim. Business call costs are deducted as utility expenses.
Keep itemized receipts for all business meal expenses, since you can claim 50% of them. The receipts can be hardcopies, or you can store digital copies by snapping a photo and uploading it directly to an app such as Expensify. Record the name of who you were with on the back of the receipt or in the notes section of the app.
You can deduct your (and your spouse’s) health, dental, and long-term care insurance premiums on Schedule A (Form 1040). If you’re eligible for health coverage through your spouse’s employer, you can’t deduct the cost of a separate health insurance plan.
If you have a home office, you can deduct the cost of renter’s or homeowner’s insurance as well. Check out our post on choosing the right insurance policy for your business if you’d like more info on this topic.
There are a range of deductions you can claim for business vehicles:
- The Cost of Operation: Vehicles that are used for personal and business can be claimed based on the percentage you use the vehicle for business purposes.
- Mileage Costs: There are two ways to claim your mileage. You can either take a standard deduction of 56 cents per mile, or you can deduct the actual costs. In order to claim the cost, all mileage claimed needs to be related to a business activity.
- Buying a Vehicle: You can deduct the cost of a vehicle purchased for your business. Vehicles used more than 50% for business have a total depreciation deduction of $11,060 for cars and $11,160 for trucks and vans. SUVs can be deducted up to $25,000.
Is Your Business New?
Some expenses could fall under ‘start-up’ costs if your business is new. However, these are nuanced so it is recommend you consult with your accountant before claiming these deductions.
We know that filing taxes isn’t the most fun thing you’ll do in business, but claiming the above deductions that are relevant to your business will help cut down amount of taxes you need to pay for the 2014 tax year.
If you have any questions about these or other tax deductions, tweet them to us and we’ll do our best to help you out asap. Looking for a bookkeeping software? Start your free trial of Bench today.