Lionesses, it is tax refund season! What type of mood does tax season have you in?
If you are dreading filing your business taxes, then I take it that your current mood isn’t quite so taxy. Well rest assured, here are 5 business deductions that are often overlooked by entrepreneurs. But first, what is a business deduction? A business deduction is a reduction from your business income before calculating your taxable income. In other words, deductions help reduce your taxable income. I hope you are already starting to get in the tax mood.
- Bank Fees-
Fees associated with your company’s bank accounts are business expenses that are deductible. So yes ma’am, that includes check printing fees, service fees, credit/debit card processing fees and stop payment fees. In addition, bank fees that are assessed due to chargeback items (check deposits that bounce) are deductible bank fees. Furthermore, if you write a check that doesn’t clear or overdrafts your business account, the fees assessed by your bank for that item are also allowable deductions. Be clear, the amount of the check is not deductible; only the fee assessed for that item. I hope your clients aren’t giving you checks that bounce. Better yet, I hope you aren’t writing checks that bounce!
- Home office space-
I hope you are not a business owner, working out of your home, who is scared to take the home office deduction. It does not matter if you are a homeowner or renter. This deduction is applicable to all types of home. There are two requirements to claim this “scary” deduction: 1. You must use the space as your principal place of business. 2. You must use the space regularly or exclusively for conducting your business/ trade. Do you meet these two requirements? Then, come on Lionesses; let’s attack and claim deductions that we are legally entitled to take as business owners! One helpful tip: when using a whole room or part of a room in your home, it is necessary to compute the percentage of your home devoted to your business activities to determine the deduction amount.
- Interest payments –
If you have debt related to your business, you might qualify to claim hefty deduction amounts related to interest payments. First, just a few questions. Are you legally liable for the debt? Ok, do both you and the lender have the intentions that the debt will be repaid? One final question. Do you have a true debtor-creditor relationship, meaning a valid & enforceable obligation to repay exists? Well, if you answered yes to these 3 questions, you can deduct 100% of all interest payments made or accrued during the tax year related to the debt. Cha-ching
- Cell Phone
Yes! You can deduct 100% of your cell phone expense as small business deduction. But hold the phone ladies! Remember, if your cellphone expenses are not exclusively for your business, there will need to be a calculation made to allocate the business usage from personal usage. For example, if 50% of your cell phone expense is allocated to business, then you are only allowed to legitimately deduct 50% of your bill expense. Don’t forget the second land-line in your home for your home office is also deductible. Generally, the first telephone line in your home is not deductible.
- Tax preparation fees-
Business owners often leave money on the table by overlooking fees associated with their tax preparation. Entrepreneurs, tax fees related to the preparation of the business portion of your return is 100% deductible. It works this way: you deduct the fees that you paid for the previous year’s business portion tax preparation on your current year’s Schedule C or C-EZ. The trick is not to deduct the entire amount of your tax preparation fee on Schedule C or C-EZ. Take this example, you paid $350 on April 10, 2015 to have your 2014 taxes prepared. Of the $350, only $150 is attributed to your business tax preparation, Schedule C or Schedule C-EZ. When you file your 2015 taxes (due by April 18, 2016), the $150 is completely deductible as an expense for your current year deductions. Got it? Fabulous!
The remaining amount of the tax preparation fee not attributable to your business portion can be deducted on Schedule A, if you are able to itemize. Before leaving the table, make sure you don’t leave any money related to attorney and other professional fees! Such fees are generally 100% deductible as well.
The Internal Revenue Code has many rules. It can be said that for every rule or generalization, there are at least two exceptions. With that being said, please refer to a tax professional to help you understand and properly apply the tax rules to your particular business or personal situation. I hope these business deductions have you in a much better mood and bettered prepared to file your business taxes.
Feeling taxy now, Lionesses?
Hope your business blings in the year 2016!
Photo credit: Xuan Zheng