List of Tax Deductions and Credits

Previously we had provided an extensive list of tax deductions that you should be aware of as you prepare receipts and records for filing 2018 deductions in 2019. Tax minimization is always going to be a top priority for small to middle-size businesses. As promised, we’re providing an updated list of deductions and credits of which you should be aware. Some of these deductions are not well-known. For tax planning purposes, if you estimate that you may be eligible, either prepare for these deductions and credits within your accounting software program or consult with your tax person to ensure that you’re receiving these deductions and credits. All of these deductions and credits apply to small businesses.

• Accounting Fee Deductions– Small businesses may deduct the costs for services rendered by an accountant, CPA or any other financial advisor as long as it is for business only and if the business operates as a for profit.

• Advertising/Marketing – Deductible when it provides the ability to manage brand image, reach clients/customers. No anonymous donations or sponsorships will be deductible as they will fail to represent the business.

• Amortization (Depreciation)– According to the IRS ” You may be able to depreciate property you own that is used in a business with a determinable useful life beyond one year, and that is not categorized as excepted property.”

• Bad/Uncollectable Debts – IRS – ” To deduct a bad debt, you must show that there was an intention at the time of the transaction to make a loan and not a gift; AND you have no reasonable expectation that the non-business bad debt will be repaid.”

• Banking Fees for Small Business – Any banking fees paid by the business are deductible.

• Board Meeting Expenses – These meetings are meant for company directors and will depend on the company or organization. Since the meetings are related to the business, they are deductible.

• Building Maintenance/Repairs – A small business may deduct maintenance and repairs to tangible property as long as the amounts that are paid are not going to be required to be capitalized upon. (See Section 7 about maintenance and repair costs).

• Business Association Membership Fees/Dues – A portion of these fees/dues are deductible depending upon how the fees paid will be used by the association. These are classified as miscellaneous deductions by the IRS.

• Business/Travel Expense Deductions – IRS – ” You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can’t deduct travel expenses paid in connection with an indefinite work assignment.”

• Cafeteria/Health Insurance Plan Deductions – Partial deductions are allowable by employers who assist in payment of health plans.

• Car Expense Deductions – If your vehicle is used for work or even driving to assist in a charitable act, there are some deductions available.

• Charitable Small Business Deductions (Business) – Be confident that your contribution is going to a reputable charity to be eligible for small business deductions.

• Cleaning or Janitorial Services – Partially deductible as long as payment for cleaning or janitorial services is reasonable.

• Collection Costs – See IRS publication 535 by clicking the link to the left.

• Commissions to Non-Employees – IRS – ” A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600. To best determine whether someone is an independent contractor or an employee, see Pub. 15-A”

• Computers and Technological Peripherals and Supplies – If you’re using a computer to assist in conducting your business more than 50% of the time it’s in use, you may deduct the entire cost of the machine (new or used) under an IRS provision called Section 179.

• Consulting Expenses and Fees Paid – Consulting fees are considered a deductible expense.

• Continuing Ed (Work Related) – IRS – ” To be deductible, your expenses must be for education that (1) maintains or improves your job skills or (2) that your employer or a law requires to keep your salary, status, or job.” Not for acquiring skills for a new job
• Conventions/Trade Show Expenses – IRS – ” You may be able to deduct the ordinary and necessary business-related expenses you have” – ” An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. “

• Costs of Goods You’ve Sold (Valuing Inventory) – IRS – ” You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42.”

• Credit Card Convenience Charges – IRS – ” Credit card companies charge a fee to businesses who accept their cards. This fee when paid or incurred by the business can be deducted as a business expense.”

• Depreciation – IRS – ” If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. This method of deducting the cost of business property is called depreciation.” Also, see IRS Publication 946.
• Dining During Travel for Business (Meals) – IRS – ” It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. The meal is business-related entertainment.”

• Discounts to Your Customers – These discounts are deductible for businesses.

• Education/Training for Employees – IRS – ” If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program.”

• Employee Provided Cell Phones for Business Use – See IRS Notice 2011-72

• Employee Wages – The IRS Revenue Code considers the amount you pay in employee wages and salaries as normal business expenses. Be advised that the relationship (employee) must satisfy all IRS requirements before deductions are considered.

• Entertaining Clients/Customers – IRS – “You may be able to deduct the ordinary and necessary business-related expenses you have for entertainment.”

• Equipment Deductions for Business – According to Section179.org “Essentially, Section 179 of the IRS tax code permits companies to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year.”
• Equipment Repairs (Business Equipment) – IRS – “Election to capitalize repair and maintenance costs are deductible.”

• Exhibits For Publicity (Advertising) – This is considered an advertising business expense.

• Franchise Fees – When you’re purchasing rights to operate under a franchisor, these would be considered “start-up costs.” These costs are deductible. Once you’ve established your franchise, the regular payments made to the franchisor will continue to be deductible under “regular business expenses.”

• Freight/Shipping Costs – As long as your shipping costs are used for business related purposes, these costs are deductible from stamps to large UPS and FedEx shipments.

• Furniture/Fixtures for Business – IRS – “You generally can’t deduct in one year the entire cost of property you acquired, produced, or improved and placed in service for use either in your trade or business or to produce income if the property is a capital expenditure. Instead, you generally must depreciate such property.”

• Gifts For Clients/Customers (Limited to $25.00 per deduction) – IRS – ” If you give gifts in the course of your trade or business, you can deduct all or part of the cost.”

• Group/Health Insurance Premiums (Must Qualify) – IRS – “You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.”

• Guard Dog for Business Protection – According to Nolo “If you use a guard dog to guard your business premises, you can deduct the cost as a business expense.” You will have the ability to deduct dog food, veterinarian bills as well as other costs related to the guard dog. There are qualifying factors.

• Hiring a Veteran (And other targeted groups) – IRS – ” The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2020.”

• Home Office Deductions – IRS – ” You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business.”

• Interest on Business – On April 2, 2018, The IRS issued an article addressing business interest expense limitations. See Notice 2018-28

• Internet and Hosting Service Fees – IRS – ” Generally, you can deduct Internet-related expenses including domain registration fees and webmaster consulting costs.”

• Investment Advisory Services – IRS – ” You can deduct fees you pay for counsel and advice about investments that produce taxable income. This includes amounts you pay for investment advisory services.”

• Legal and Professional Fees (Business Related) – IRS – ” Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ.”

• Licensing Fees – These fees are deductible for required industry licensing related to the business only.

• Losses (Business) Due to Theft – If there has been theft that has affected the business, these losses are deductible according to the IRS.

• Management Fees (Business Related) – IRS – ” Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense.”

• Materials for Business Use (Non-Incidental) – IRS – ” If you account for inventorial items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later.”
• Medical and Dental Expenses (With Plan) – IRS – “Beginning January 1, 2017, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted is deductible as income (AGI). The 7.5% rate available for certain taxpayers has expired…”

• Mortgage Interest (Business Property) – Is deductible as a business expense.

• Office Supplies – IRS – ” Your office supplies may qualify as a recurring expense.” Deductibles for supplies will also be recurring.

• Payroll Taxes for Employees (To Include Medicare, Social Security, Unemployment) – IRS – ” The credit is part of the general business credit.”

• Parking and Toll Deductions – IRS – “Fees you pay to park your car at your place of business are nondeductible commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.”

• Prizes for Contests – IRS – “File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year in the course of your trade or business at least $600.00 in prizes and awards.”

• Real Estate Related Expenses – See the extensive list of deductions provided by nsbar.org

• Rental Deductions – IRS – ” Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as a business expense only if the rent is for property you use in your business. If you have or will receive equity in or title to the property, you cannot deduct the rent.”

• Research and Development – IRS – ” The costs of research and experimentation are generally capital expenses. However, you can elect to deduct these costs as a current business expense. Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.”

• Retirement Plan Deductions – IRS – ” This credit applies to pension plan startup costs of a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. For more information, see Pub. 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).”

• Safe-Deposit Box Rental Deductions – IRS – ” You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. You can’t deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities.”

• Software and Online Services (For Business ) – This should be filed as a miscellaneous deduction since the IRS has no specific category for this deduction.

• Storage Rental – IRS – ” To be deductible, a business expense must be both ordinary and necessary.”

• Previous Year’s Taxes – According to Turbotax state tax returns that were paid the previous year may be included in the itemized deductions for the next tax season.

• Tax Credits and Deductions for Businesses Who Have (or Hire) Employees with Disabilities – IRS – ” Businesses accommodating people with disabilities may qualify for some of the following tax credits and deductions. More detailed information may be found in the IRS publications referenced.”
• Domestic Production Activities Deduction – This deduction became active in 2005. The intention is to encourage American businesses large and small to produce goods within the U.S. The deduction applies to all types of businesses to include any business that grows, produces, extracts, manufactures, improves or develops goods within the United States. Examples of these businesses would be architecture and engineering, construction video game development, farming and agricultural services, film making and more. Although there are some limitations, this can be a great deduction for any domestic business that would qualify. For more information, click the link above.

For more information on updated Tax Breaks for Small Business Owners check out 15 Must See Tax Breaks for Small Business Owners on the Quickbooks by Intuit website!

As you implement these tax minimization strategies in your business, don’t forget to explore other ways of increasing profitability in your business: