The purpose of any business is to make money and save money when possible. Tax season is always a time when business owners need to find deductions where they are available and save money for their business. Some tax deductions are commonly used for businesses every year, however, other tax deductions are often overlooked. Take a look at the tax deductions below and see if they can help your business save money during this tax season.
Moving Expenses (Including Your Pet!)
If you lost your job and had to relocate in 2020 to find new employment, you might be eligible to deduct some of your moving expenses. It doesn’t matter if your new job is working for someone or self-employed. It doesn’t even matter whether or not you had that job already secured. You do, however, have to pass the time test and the distance test.
Distance Test:
The distance between your old home and your new job must be more than 50 miles longer than the distance between your old home and your old job. For example, if your previous home was 10 miles from your previous job, your previous home would have to be 60 miles or more from your new job.
Time Test:
You must be working full-time in the new location for at least 39 weeks during the first 12 months after moving to that area. Your full-time status during the 39 weeks can be from part-time work from multiple employers.
If you are self-employed…
The number of full-time workweeks must be 78 during the first 24 months after moving to your new location. That work can be from multiple employers.
If you’re married…
Only one of you is required to meet the time and distance tests mentioned above.
What can you deduct?
You are allowed to deduct the expenses of moving yourself, your family, your stuff, your furniture, and even your pet. Other moving expenses include professional moving services, paying a friend to help move, fuel for your vehicle at the standard moving mileage rate, storage space for up to 30 days after moving, moving supplies such as boxes and blankets, moving trucks, and moving insurance.
Get in a lower tax bracket
If you use these deductions, they can lower your adjusted gross income and potentially move you into a lower tax bracket. In that lower tax bracket, you may qualify for other tax benefits you wouldn’t be in the higher bracket.
Babysitter Fees
If your family requires the use of a babysitter while you’re working, you may be able to deduct those babysitter fees. This also applies if you’re looking for work or you are a full-time student. If you’re making $15,000 up to, but not including, $43,000 a year, you can deduct 35% of those babysitting costs. If you’re making $43,000 or more, you can still deduct 20% of those childcare expenses.
Summer Camp Fees
Similar to childcare and babysitter costs, the cost of sending your child to summer camp can be claimed as a tax credit. You must be married, looking for work, working full-time, or are a full-time student. The child at summer camp must be 12 or younger, and the deduction only applies to day camp.
Medical Expenses When Self-Employed
Are you self-employed? Do you pay for your own health insurance? If the answer is yes to both of these, you can potentially deduct all of your premium expenses from your adjusted gross income.
Lifetime Learning Credit
When you are already a high school graduate, the expenses of your postsecondary classes are eligible as a tax deduction. This deduction does count toward any post-secondary classes, but there are some limitations, and higher income levels may make you ineligible. The most you can claim is $2000 (20% of up to $10,000). If you want to improve your business skills by taking work-related classes such as tax preparation or using Excel spreadsheets, you can deduct 20% of the costs of those courses.
Anything That Benefits Your Business
This may seem like a really broad category, but if there is anything that does provide a benefit to a business and you can prove that it does, it is likely deductible. An example of this would be a Mercedes-Benz dealer who drives their top-of-the-line vehicle to and from work to showcase that nice vehicle to friends, neighbors, and the rest of the world.
Deductions for Your Home Office
If part of your home is used as your home office, decide what the percentage of your office is compared your to the square footage of your home, then deduct that percentage from work or installations you have had done to the home. For example, if your office takes up 10% of your home, you are eligible to deduct 10% of the expenses related to the installation of your attic insulation you had done – or roofing – or air-conditioning, for example.
Section 179 Deduction
The IRS tax code section 179 lets a business deduct the full purchase price of equipment or software that was purchased or financed. Even if it is a business-use vehicle (used for business 50% or more) you drive to your business, you are allowed to deduct the entire purchase price from your gross income. The government created this incentive to encourage businesses to purchase equipment as an investment in their business.
Bonus Depreciation (Investopedia Definition)
“Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, such as machinery, rather than write them off over the ‘useful life’ of that asset. Bonus depreciation is also known as the additional first-year depreciation deduction.”
This code lets a business apply significant deductions to certain equipment and software during the year they are purchased, instead of deducting for small increments of depreciation over a certain number of years. The government reasoned that businesses were investing in themselves and stimulating the economy. Some years, there is no bonus appreciation, but in 2021, it is at 100%.
Try some of these lesser-known deductions, and look for others that may apply to your specific business. You may be surprised at deductions that are available and are overlooked.