Shoeboxed’s Definitive Guide to Commonly Missed Small Business Tax Write-offs
Keeping track of small business deductions throughout the year is crucial to reducing the amount of taxes you owe come April. But with so many possible write offs, how are you supposed to keep everything straight?
The clearer you are on what does and does not count as a write-off for your small business, the bigger your refund at the end of the year.
Check out some of the most commonly missed and misunderstood small business deductions, and start tagging your receipts today!
Don’t you hate it when you’re stuck in an airport or hotel, and you need cash, like, now? Even if your only choice is a competitor’s bank, don’t sweat those ATM fees!
ATM fees are considered banking fees, and for small business owners, banking fees are part of what the IRS considers regular operating expenses.
Make your life – and the life of your accountant – infinitely easier by having separate bank accounts for business and personal transactions. That way you’ll be able to easily track ATM fees for your business account each month.
Keep in mind that regular people (non-business owners) are not allowed to deduct ATM or bank fees, so take care to only claim those charges associated with your business accounts.
So the next time you see a Wells Fargo machine when you bank with Chase, relax! Uncle Sam is ready to foot the bill for that $3 (or $5, or $7!?) fee.
Mileage, parking and tolls
This category is completely separate from the travel deductions you claim while away on business. If you’re staying somewhere overnight or are out of your local area, be sure to tag those receipts in a way that differentiates them from your regular business mileage.
There are two ways to calculate deductions for the use of your car.
First, you can take a standard mileage deduction that’s set by the IRS each year. After tracking your qualified business miles*, you’ll multiply the total number of miles by an amount determined by the IRS.
In 2012, for example, the standard mileage rate was 55.5 cents for every business mile driven.
You can also claim what’s known as the actual expense of driving your vehicle. This is the total cost of owning and operating your vehicle each year. This number is calculated by adding up all of your mileage, the cost of repairs, vehicle depreciation, etc., and then determining the percentage of time you used your car for business vs. personal travel.
Ask your tax professional which option will get you the biggest deduction.
* So what counts as qualified business miles?
Believe it or not, driving to and from the office each day does not count as a deduction. Driving to an off-site meeting or temporary workplace does. It’s important to claim a regular place of business so the IRS can easily see why certain trips away from the office qualify as business miles.
Happily, all cab fares, public transit costs, tolls and parking fees that are related to your business are 100% deductible. Again, make sure to separate the cost of parking while attending an in-town conference from the cost of parking your rental car while traveling in another state.
Meal deductions are some of the most commonly misunderstood write-offs. That’s because the IRS has quite a few stipulations that need to be met before they’ll pay for your dinner!
In order to write off the cost of a meal, keep a few things in mind:
- The meal must be business-related. If you take your grandma out to eat on your lunch hour, it doesn’t count. Business-related means that business is being conducted, or that the meal will likely result in some sort of business transaction (i.e. someone is going to make money).
- You have to be physically dining with someone else. Solo meals can only be claimed when you’re traveling. As of right now, FaceTime-ing with a colleague or client during a solo lunch doesn’t count, even if you both get the Waldorf salad.
- Make sure not to double dip and claim a meal in two different categories – it’s either a meal write-off or a travel write-off, but not both! If you’re dining while away on business, you’ll most likely want to claim the meal as a travel expense.
- Most of the time, you can only claim 50% of the cost of the meal. Exceptions to this rule might include buying breakfast for your employees and serving it at the office. In this case, the IRS may let you claim up to 100%.
Internet access while traveling
Isn’t it annoying how some airports still don’t offer free WiFi? What is this, 2002?
Lucky for you, the cost of that overpriced 24-hour pass or a subscription to Boingo Wireless is tax deductible, as long as you’re using your surf time for business purposes.
Just like at home, you can’t deduct 100% of the cost of Internet access if you’re also using it for personal use. If your time spent on Facebook is more about catching up with friends than promoting your page, just be sure to calculate percentages accurately and claim only business-related time.
Stamps and mailing costs
Snail mail is more than just kitschy-cool; it’s also tax deductible for your small business!
As long as what you’re mailing or shipping is business-related, you can deduct the cost of postage, envelopes, P.O. Box rental fees and delivery services like FedEx and UPS.
The IRS will even let you deduct the cost of a messenger service, as long as something like that is regular and necessary for your business. (Read: sending a courier message to ask your best friend to lunch probably won’t count).
Another commonly-missed deduction is the cost of shipping. If your business sells physical goods and you pay the cost of shipping, those fees are tax deductible. This is a great way to entice new business (free shipping!) without actually incurring additional costs.
Still unsure about how to tag your receipt? Contact our Help Desk with questions.