The Top 3 Tax Deductions You May Be Missing

Don’t let poor recordkeeping prevent you from claiming these top tax deductions.  As a small business owner, we know you already have a lot to keep track of.  But if you start adding up all of these common expenses, you could save a lot more during tax time next year.  Fortunately, you don’t have to do it alone.  With the help of our knowledgeable team at Bounds Accounting & Tax Services, you can stop missing these 3 deductions.

1.  Startup Costs for New Businesses

The first year is typically rough—and expensive—for many new businesses.  But the IRS has realized that and offered an additional tax deduction to encourage entrepreneurs!  If you want to read the full details, you’ll find everything you need to know in IRS Publication 535.  Otherwise, we’ll summarize the main costs here and you can set up a meeting to talk with us about the particulars of your small business in person.

For this tax deduction, you’re allowed to claim up to $5,000 in business startup costs and another $5,000 in organizational costs.  Provided you didn’t spend more than $50,000 on both combined.  In that case, your deduction may be limited.  Still, you need to understand the difference between the two categories to properly track your expenses.

Business startup costs include a broad range of expenses and investments involved in creating an “active trade or business.”  Although you can also incur these costs if you’re acquiring an existing business.  Just work with a qualified tax professional to ensure you don’t accidentally deduct any capital expenditures or other items that meet the requirements for depreciation.

Organizational costs are a little more straightforward, since they deal with legal or consulting fees associated with creating a business plan and forming your business structure.  They also include the fees involved in forming a partnership, corporation, or limited liability corporation (LLC).  As long as these costs come up during the first tax year that the company is in business.  So, make sure you track any incoming bills, travel expenses, etc. to avoid missing this tax deduction.

2.  Petty Cash around the Office

Tracking purchases made on a business credit card is fairly easy.  But how do you record expenses you pay for in cash?  Maybe you keep a certain amount of petty cash on hand to pay for unexpected deliveries or emergency office supplies.  You can also use it to treat your employees to surprise bagels or pizza!  Even though these seem like small expenditures, they have a way of adding up throughout the year. 

All you really have to do to maximize this tax deduction is develop a reliable method for recordkeeping.  We recommend storing a logbook near the petty cash to encourage employees to write down expenses as they occur and keep the receipts.  You can also try implementing a voucher system if the cash moves around more.  As long as it captures the date, time, amount, and nature of the expense, do whatever works best for your small business!  Try to enter the expenses into your accounting software at the end of each month.  That will save you a lot of time and effort during tax season.    

3. Car-Related Tax Deductions

Even if you have vehicles pulling double duty for both business and personal use, chances are you can still deduct some of your car-related expenses.  To determine whether the standard deduction or actual expenses approach will work better for you, we’ll need well-documented information.  Including how many miles you drove total throughout the year, how many miles you drove for business, how much you spent on maintenance, gas, tolls, insurance, vehicle loan interest, and more.  Then, we’ll be able to calculate which method gives you the bigger business deduction.

Just remember, the IRS is especially critical of costs associated with business vehicles.  Anything you plan to deduction, you should backup with solid recordkeeping.  If your company owns the car and offers its use to your employees, you should be able to claim an even bigger tax deduction.  Largely to offset the greater expense.  Even leased vehicles may qualify as tax-deductible expenses, but you won’t be able to switch back and forth between the standard deduction and actual expenses method.  Therefore, we recommend that you discuss any large business purchases (or leases) with your accountant before deciding.

We’re here to help you, after all!  Whether we’re recommending apps to make tracking expenses easier or working to find all your available business deductions.  You can trust that at Bounds Accounting & Tax Services, we’ll do everything possible to ensure that the business owners we serve throughout Littlestown, Taneytown, Sykesville, and Hampstead (as well as the surrounding areas) aren’t missing these key tax deductions.