By Amy Vetter
Planning to spend the next few days turning over every rock in search of hidden tax deductions? Hopefully your business won’t try the crazy things these surveyed accountants have seen lately. Thinking about writing off a pet dog, cat or, umm, snake? Well you might want to think again, even if it is the office mascot. How about strip club visits, gambling or breast enhancements? These probably won’t escape Uncle Sam’s scrutiny either.
No, if you really want to unearth some genuine withholding gems before the April 15 filing deadline, you’re better off considering some more traditional approaches. When in doubt, your accountant, as a trusted advisor, can steer you in the right direction—and away from all of those dreaded audit flags.
Here are some small business accounting tips and often overlooked tax breaks to ask about before finalizing a return:
1) Your Car
Most of us know we can deduct a portion of the car we use for business. But we’re often unsure how much. Hopefully, you’ve kept records because the most important thing to determine is how often the car is used for business purposes. If it is 100 percent of the time, then you’re golden—you can deduct the entire cost of operation (subject to limits your accountant can explain). By the way, the 2014 rate for business use of a vehicle was 56 cents per mile. If your car isn’t used solely for the business, you will likely figure the amount of your deductible car expense using one of two methods: standard mileage rate or actual expense. If you qualify to use both methods, ask your accountant to calculate the deduction both ways to see which gives you the larger tax break.
2) The Home Office
No doubt, if you run a business from home, you realize you can deduct certain expenses related to its use. The home office deduction is available for both homeowners and renters, but oddly enough, most sole proprietors in the United States do not take this write-off. Why? The biggest reason might be that figuring out whether you qualify—and how much you are able to deduct—can be a pain.
Knowing if you qualify is the easy part. The IRS will want to see that the home is your principal place of business and that you use it regularly for that purpose. The tricky part is determining what percentage of the home is used for business and how that applies to bills, such as utilities and the mortgage. Get this part wrong, or look like you’re fudging too much, and it could trigger an audit. Scary, right? Don’t despair. The IRS now offers a simple method of calculating home office deductions, which can help avoid audit agony. Also, if you’re a new business, don’t forget to mention any startup costs. You can deduct up to $5,000, incurred before you began operations, in your first year of business.
3) Meetings and Conferences
Remember to write off “ordinary and necessary expenses” for attending business meetings and conferences, including entry fees plus associated travel costs and meals. Even if these expenses weren’t very high, if you have enough of them, they can add up to a healthy deduction. Now don’t go crazy. This doesn’t mean that wild nights out on the town are allowable (noted above). But you are allowed to write off expenses related to business trips—even if you spent part of the time sunbathing or sightseeing. That’s one reason why so many large conferences happen in hot spots, such as Orlando, Las Vegas and Scottsdale, Arizona.
4) License Renewals
You typically cannot deduct the cost of membership to clubs organized for business or pleasure. And believe it or not, you can’t write off professional accreditation fees. But you might be able to write off professional and regulatory license costs. Similarly, even though they sound like clubs, you may also qualify to deduct dues paid to professional groups (such as bar or medical associations, real estate boards and trade associations) or organizations such as the Chamber of Commerce. The key, again, will be whether the licenses are considered “ordinary and necessary” for doing your job. Your accountant can tell you which licenses qualify.
5) That Old Computer
Really? I can get a deduction for that hunk of junk on the desk? Indeed, per the IRS, you can depreciate your old computer if you use it to produce income (for example, to manage investments that produce taxable income). Your accountant will understand the methods for doing this (straight-line or alternative depreciation system).
6) Business Gifts
Who knew the IRS would be so generous as to let you benefit from giving? You can actually deduct up to $25 of business gifts given to any one individual during the year. No kidding. This means you can deduct all or a portion of what it cost you to send holiday gifts sent to 30 or 40 of your best customers. Just be sure you have receipts and can prove the expense was business-related.
7) Credit Card Statements
If your credit card is used solely for business purposes, the interest may be tax deductible. Ditto for ATM cards used expressly for a business. You knew that, right? For personal cards, interest is generally not deductible—unless you used that personal card for business purposes. That’s where things get a little murky. Hopefully, throughout the year, you used online accounting, cloud accounting or bookkeeping software to track and flag business vs. personal expenses on those cards. If not, it might be worth skimming those statements again for any overlooked potential business items. Anything you missed? A desk? Printer ink? High-speed Internet for the office? Leave no rock unturned in your statements; they can be a virtual gold mine for deductions.
Amy Vetter, CPA, CITP, CGMA, is the global vice president of education and enablement and head of accounting, USA for Xero. In this role, she is responsible for developing and executing Xero’s worldwide education strategy with a focus on Xero University (XeroU). Follow her on Twitter @AmyVetterCPA.