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May 5, 2021
Author : Patty Rodriguez
This tax season, the IRS has extended the filing deadline to May 17th for sole proprietors and single-owner LLCs, and so many are probably looking to find creative tax deductions to decrease the amount of money they will owe to the agency.
As we have previously reported, business expenses purchased with money from the Payment Protection Program are now tax-deductible, but that’s not the only kind of deduction you should keep in mind while filing. Make sure to take advantage of that if you used any PPP funds for business expenses, however.
If your business was lucky enough to survive the pandemic — afterall, more than 1,000 businesses in America have closed per day — there are ways that changes you’ve made to your business model might save you some money.
For example, since many people have begun to work from home, home office tax deductions are an option. Bought a desk to work at? You may be able to claim that. Your mortgage or rent, utilities, and property tax also affect your business taxes if you are running it from your home. Here is the IRS document that breaks down Publication 587, which pertains to use of your home for your business.
Make sure to keep records such as canceled checks, receipts and other evidence of at-home business expenses.
According to the IRS, “In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. The area you use to figure your deduction is limited to 300 square feet.” In other words, you can deduct $5 per square foot of the part of your home you use for your business.
Meanwhile, even if you continue to rent out the space for your business, the IRS considers rent a business expense, so you can deduct that.
Other traditional business expenses can also be deducted. Money spent on advertising your business, transportation, meals, vehicles, hotels, a dedicated business phone number, all these things can be deducted. A good rule of thumb is that if you use something you spent money on exclusively for your business, it should qualify as a deductible business expense.
As we have previously advised, however, make sure to keep the proper documentation of all this, and to keep business expenses within reason compared to the size of your business.
Make sure to check out our handy guide on protecting your business from IRS auditors and how to deal with them should you have to.
Category : Taxes and the IRS