Business scenario: Getting the most out of your 2017 tax deductions

December 20, 2017

It’s time to review your small business tax deductions for 2017 and review tax strategies for 2018. Here is a list of the 9 most common tax deductions for small businesses. If you have expenses that fall into these categories, gather your receipts and applicable information and review them with your tax advisor to see if they apply to you.

The 9 Most Common Deduction Types for Small Businesses

  1. Space: You’re probably aware that money spent on rent is deductible, but did you know that if you use your home as a home office to do administrative work, or even to store inventory, you may be able to take a home office deduction? There are special restrictions to this deduction, so make sure you go over them with your tax advisor. For example, the space you’re claiming as a home office must be used regularly for that reason and cannot be used for any other purpose.
  2. Travel expenses: If you travel to a client or deliver orders, your travel expenses are deductible. Likewise, there are numerous deductions for business trips as long as the expenses are business-related and reasonable, so if you go to tradeshows or visit a supplier make sure you keep all receipts including flight costs, rental cars, hotel, and food.
  3. Equipment: Purchase any new equipment this year? Not only is this expense usually deductible, you have choices on how to deduct it. For example, you can depreciate it over time to spread out the deduction over multiple years. Ask a professional to see whether it makes more sense to take the full deduction this year or depreciate it over time.
  4. Employee compensation: Whether you have employees or contract workers, any compensation you pay—salaries, bonuses, or hourly fees—are deductible.
  5. Benefits: Similarly, any benefits you pay for employees such as health insurance, group-term life insurance, sick pay, vacation time, and pension plans are deductible.
  6. Employee perks: If you offer your workers perks beyond compensation and benefits, ask a tax professional if they are deductible. Employee discounts, free memberships, or tickets to events are examples of common employee perks that may be deductible.
  7. Business expenses: Many common business expenses, such as license fees, legal and accounting advice, marketing and advertising expenses, professional development, or even interest on business loans are all potential deductions. Make sure to keep all receipts and details on what you received for these fees for your tax advisor.
  8. Insurance: Several kinds of business insurance are currently deductible including professional liability insurance, accident and overhead insurance, coverage for casualty and theft, losses, and unpaid debts.
  9. Charitable donations: Contributions to charitable organizations may be eligible for a deduction, but the rules are tricky. Make sure you keep detailed records, especially when donating your time. For example, if you donate your expertise to a charitable event your time may not be deductible, but you may be able to deduct the mileage or other costs.

Tax Strategies to Start 2018 Right

Set up a system early: In order to take deductions, you need to keep certain written records handy to prove you are eligible. Investing in a computer-based program to track your sales, expenses, and inventory helps keep all the details organized and ready for tax-time. Clover offers several options to help, but if you’ve already invested in a program such as QuickBooks syncing it to your POS system is easy. (Check out available apps in the Clover App Market.)

Train employees to save appropriate documentation: Ensure that all employees know what receipts to keep and what information you’ll need to process taxes at the end of the year and have a system for keeping them organized. For example, if you or your employees are using personal vehicles to deliver orders you’ll need to keep track of the mileage used solely for business.

Share your business goals with your tax advisor: When you schedule time to go over your 2017 tax deductions with a tax professional, set aside additional time to review your future goals. For example, if you’re considering purchasing a business vehicle or large machinery, there may be energy tax credits or special deductions you should consider when making purchase decisions. Or if you’re planning on staffing up, they may have advice on how to set up payroll and tax withholding correctly.

This article is for informational purposes only. Clover does not offer tax advice. Seek the assistance of a certified professional for personalized tax, investment, or legal information.

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[image: Tax by Phillip Ingham on flickr]