Tax season can be a stressful time for many people, especially small business owners. However, there are several lesser-known tax deductions that small business owners may be unaware of. Keeping diligent records and seeking guidance from a trusted tax professional are key to a smooth tax season. Here are ten lesser-known tax deductions that may apply to small business owners:
1. Home Office: If you have a designated area in your home for business, you can deduct associated expenses. This can be done by deducting actual expenses or using the simplified method set forth by the IRS.
2. Guard Dogs: Expenses related to keeping a dog on-site to guard your storefront or merchandise can be deducted, including adoption fees, grooming, vet visits, and everyday care.
3. Music Equipment: If you use music in your workplace, expenses for stereo equipment and subscription costs for music services can be deducted. Just be sure to keep proper documentation for these expenses.
4. Contest Prizes: If you held customer contests throughout the year and the prizes exceed $600, the cost of the prizes can be deducted using form 1099-MISC.
5. Entertainment: 50% of unreimbursed entertainment expenses can be deducted, as long as they are not considered lavish or extravagant in the specific circumstances and meet the IRS guidelines for being directly related to the business.
6. Conventions: Expenses related to attending conventions, trade shows, local seminars, and webinars can be deducted if proper records are kept.
7. Customer Gifts: Gifts given to customers for promotions or appreciation can be deducted up to $25 per gift, as long as certain requirements are met.
8. Royalties: If you have to pay royalties to investors or other businesses, these expenses can be deducted as marketing, selling, and advertising expenses.
9. Losses on Bad Debts: If you have made reasonable efforts to collect on a debt and failed to do so, it becomes a business bad debt and can be deducted as long as it was included in your gross annual income.
10. Carryovers: Several expenses can be carried over to the following year to help reduce taxable income, including home office expenses (using the actual expenses method), operating losses, and capital losses.
Taking advantage of these lesser-known tax deductions can help small business owners save money on their taxes. Being organized and seeking guidance from a tax professional will ensure that all deductions are properly claimed.
