Holidays are such hectic times for families and the last thing you may be thinking about as a small business owner is end-of-the-year finances and taxes. Before you take that hard-earned break from your business and bake all cookies, you should audit your financials and taxes BEFORE the year ends. You don’t want to miss out on some tax benefits for your business that will help you save money and get you on the right track for tax season. Here are some ideas of what you can get deductions for, as well as some ways to make tax season easier on you. There are many expenses that are tax deductible that you may have not thought of before and it's critical that you make those transactions prior to December 31st so you can take advantage of the tax liability savings.
As you're shopping around all the deals in Target, make sure you snag a few goodies for your clients! Any type of tangible client gift including the cost of sending the item (stamps, envelopes, packaging, postage, etc), are all tax deductible! You can only write off $25 per person so it is good to stay under that dollar amount to get the most out of your money. Not every gift can be written off though here is a good checklist of gifts to get and avoid:
Deductible Gift Ideas
Also, one of my best tips to get around the $25 gifting limit is to market your business on the gifts your giving! If you place your logo on mugs/pens/stickers/keychains and give those as gifts, the full amount can be deducted from your business as a marketing expense even if its above and beyond $25.
Best Buy, Home Depot, Wayfair, and almost all other stores have incredible deals during the holidays so this is the time to upgrade your business equipment and furniture. Items like computers, cameras, desks, chairs, and cell phones are all things you should be looking out for this time of year. If you can save $500 during this time of year on a big business expense, it's totally worth it.AND GUESS WHAT?! All TLP Contracts are 100% deductible as well (as a professional expense)! So if you're wanting another good deduction on your taxes, this is a great time to buy that contract you have been eyeing!
Travel and Car Expenses
Have you been traveling for your job? Are you traveling around for holiday mini-sessions, holiday work parties, or networking events?! Many expenses associated with your travel are fully deductible. Flights, train rides, buses, shared ride services, dry cleaning, and your hotel or Airbnb are all fully deductible as long as they are being used solely for business purposes. Make sure to note down how many miles you have put on your car for work purposes and use it for a tax deduction. The IRS actually has a standard rate of deduction that you can find here! You can also opt to have your car itself as a business expense. Many business owners who drive a lot for work will either lease a car and deduct part of their lease payments, or even buy a car outright using business funds so its a business asset (and expense!). This is a great way to save money on when driving for work and something you and your CPA should discuss.
Working from home is the best during the cold winter months (...I say this as I write this in Montana)! But did you know that you can actually take part of your personal home expenses as a business expense? There is a standard deduction for home offices if you have a designated space in your home for work. And, you don’t have to be a homeowner to claim the deduction. In fact apartments, mobile homes, boats or other similar properties are all eligible according to the IRS. The trick is that your home office needs to be used only for your business (so it can’t be a guest room with a desk in it) and you must be able to prove that you need an office for your work.
There are two ways taxpayers can calculate their home-office deduction. The first is to take each square foot of your home office up to 300 square feet, with a maximum amount allowed according to the IRS. The second way is a bit more complicated and requires good record keeping as you must keep track of all of your actual expenses. With this method, you can write off up to 100% of expenses for your home office including repairs and upgrades to the space. Talk to your CPA about which method of reporting is best for you!
All The Good Food!
Well not actually all the food, but some of it for sure! Many of us are holding business meetings during the holiday season, so make sure you keep track. Remember to keep your receipts because you can deduct some (or all!) of those meals for business purpose.! Under the Taxpayer Certainty and Disaster Relief Act of 2020, the federal government temporarily allowed food and beverages bought from restaurants in the years 2021 and 2022 were allowed to be 100% deductible. Going forward, most meals will go back to being only 50% deductible. However company-wide parties and meals during work travel are still 100% deductible. So, feel free to still host that company holiday party!
Licensing and Platform fees
Starting a new small business often results in all kinds of initial permit fees, license fees, and online platform fees. While I know you probably don’t want to look at those again, remember keeping up with those are tax deductible each and every year thereafter. So, spend a couple of extra minutes and document what fees and licenses you've paid for already this year. Then, determine if there are any fees you can pay for in advance to take advantage of the deduction this year. Sometimes even paying in advance will save you money in the long run since platforms often discount when paying-in-full.
Continuing Education Fees
If you are eying that conference or mastermind to help take your business to the next level you should definitely keep in mind that continuing education costs as a business owner are deductible! Additionally, all travel expenses to educational events are also 100% tax deductible. The end of the year is also a great time to see what expendable income you have available to commit to continuing education, and is oftentimes a really good expense to pre-pay for before year’s end.
Remember that it isn't a failure to ask for help to make sure you better understand taxes–especially if it can help you save money! So don’t hesitate to sit down with a CPA or financial advisor if you need more help with this.
Article Updated 12/20/22