As tax season rolls around, small business owners and solopreneurs may be wondering about the deductions they can take advantage of as they prepare to file taxes. When it comes to the technology, tools, and space you use for your business, you may be able to write off some of your expenses, like internet or phone costs. Startups may be able to deduct even more. As you get ready to file taxes for your small business, factor these four tax deductions into your preparation.
Did you start your business in the last year? You may be able to deduct some of your costs up to $5,000. Startup costs are associated with any amounts paid to start an active business or the research process of starting an active business. This includes the costs of purchasing technology for your business, including computer software, equipment, and supplies. Some startup costs are amortizable too and paid over the lifetime of your business. You may be able to deduct these expenses over a few years.
You also will have to keep up with technology changes over the course of your business, so be sure to keep in mind any business software or equipment purchases you make over the years. Only write off the technology that is necessary to run your business, like printers, computers, or even mobile devices. You can also write off subscriptions to business websites, magazines, or conference fees. Be sure to document the usage of any tech tools that may be used for both business and personal activities so you can calculate the percentage you can write off.
Your home office
If you run your business out of your home full or part-time you may be able to deduct some expenses related to your mortgage interest, insurance, utilities, repairs, and depreciation, according to the IRS.
Business owners have the option to file their tax returns with either the simplified or regular method. In the simplified method, you can deduct $5 per square foot of your home used for your business with a maximum of 300 square feet. Standard deduction of $5 per square foot of home used for business (maximum 300 square feet). You may also be able to deduct mortgage interest and real estate taxes, but you cannot deduct depreciation.
The regular method goes much deeper, requiring a calculation of the percentage of your home used for your small business. It requires detailed records about expenses used for the small business space in your home and does allow you to calculate for depreciation. As a rule, you must show that you use this area of your home exclusively and regularly for business.
Internet and phone service
If your business relies on your internet connection or landline, you can also deduct your internet and/or phone expenses during your small business tax preparation. Just keep in mind that if you run your business out of your home, you will most likely need to calculate the percentage you use the internet for your business. You can also deduct costs related to the internet, like domain registration fees or consultation costs from webmasters, or digital marketing efforts, like digital add placement, customer relationship management (CRM) tools, professional photography/videography, or content creation associated with your business.
When it comes to your phone line, the IRS will not allow you to write off the first phone line in your home if you use it for both business and personal use. But if you have long-distance call costs for your business, you can write those off. You can also get a second phone line dedicated to your business and write that off.
Tax codes and laws change on a regular basis, so be sure to consult the IRS or a tax professional to determine the right deductions to make for your small business tax preparation. For more information and insights on running a small business in the digital age, be sure to visit the Small Business section of our blog.