Here are deductions we see in nearly every business return we prepare. They are so common that I usually ask the taxpayer if they’ve forgotten something when I don’t see expenses in these categories.
- Business meals – for 2022 the deduction is back down to 50%. The meals should have a business purpose and you should note the details of the meeting; who you met, when, what was the business purpose of the meeting and how much.
- Auto expenses – here you have a choice of 2 methods for claiming a deduction for vehicles and you can claim whichever is the largest:
- Mileage – only the miles driven for a business purpose are deductible. And, in 2022, there are 2 rates, one in the first half of the year and a different rate in the second half of the year so it’s important to know when the mileage is being claimed. The IRS requires a written log for mileage claims and you will have to produce it in an audit.Vehicle expenses- you can claim the business component of insurance, fuel, repairs, maintenance, loan interest, registrations, lease payments, tolls, depreciation, etc. To calculate the business portion, you have to know the total miles and the business miles driven for the year. The business portion is the business miles divided by the total miles.
- Travel expenses for business-related trips. Examples include meeting a customer out-of-town, annual shareholder meetings, business related seminars or training, to name a few. You need to keep good records of why the trip was business related. Expenses for hotel, airfare, taxi, dry cleaning, meals, etc. could be deducted so keep receipts and good records.
- The home office- if you have a space in your home that is used regularly and exclusively for business purposes, you can deduct a portion of expenses related to this space, such as utilities, internet, trash, water, hazard or renters insurance and even depreciation if you’re a home owner. Determine the portion of expenses you can claim by dividing the office space by the total space in your home. For instance, 200 sq ft of office in a 2000 sq ft home allows deduction of 10% of costs noted above. The IRS also allows a safe harbor deduction of $5/sq ft.
- Cell phone – your cell phone used to be classified as listed property by the IRS meaning that you had to track business and personal use, such as you still do with vehicles. Cell phones are no longer considered to be listed property so if the phone is used some of the time for business, the phone plus your cell phone plan is deductible.
- Computers – your computer and internet plan are deductible as long as the computer is used for business purposes and is housed at a regular business location, such as your home office.
- Education – education and training is deductible if it helps you in your business. It is not deductible if it is the means to a new trade or business. For instance, I prepare taxes. If I go to school to be an auto mechanic, those classes would not be a deduction for my business.
- Kids and family – if there is something that you pay for that could be done by your kids, you can pay them from your business and it would be deductible. The work has to be age-appropriate and you need good records but you can pay a child up to their standard deduction and they wouldn’t have to pay taxes on that income. Add another $6000 that is put into a retirement plan for them and you’re looking at a business deduction of over $18000. A great way to fund school expenses. You can also help other members of your family, such as your parents. The benefits aren’t the same but the principle is.
Note that the deductibility of these items depend on the facts and circumstances of your business.
We work with our business clients on a regular basis to help them be sure they are claiming all the legitimate deductions possible.
Aurora Financial Services is accepting new business clients at this time. Call us at 303-745-3962. You’ll be glad you did.