Overlooked Tax Deductions for Small Businesses - Part 2

This article is a continuation of the article Overlooked Tax Deductions for Small Businesses - Part I. Here, we will further explore more of the most commonly overlooked tax deductions that small businesses may miss. Below is a list of some commonly overlooked tax deductions that small businesses can use to help reduce their overall taxable income and save money.

Lunch Meetings

A commonly known and mentioned deduction is business lunch meetings. It is often discussed, but many small businesses do not write off these expenses or forget to track all their business lunch or dinner expenses. This cost can significantly add up over time, and many small businesses can't afford to miss deductions like these. A business lunch, even just twice a month, can produce significant expenses over the course of a year that can be deducted.

The business meal deduction has been a long-discussed and debated issue in regard to the tax code. It has undergone changes over the years, but some recent modifications have been implemented as of late that small business owners should note. Business owners may be familiar with the figure of 50% being what they were allowed to deduct in regards to the cost of these business meals. However, as a response to the economic impacts of the Coronavirus Pandemic, the United States Congress has passed The Consolidated Appropriations Act of 2020, which allows qualifying business meals that occur between 12/31/2020 and 1/1/2023 to be 100% deductible! The change is temporary for now and was implemented to help relieve some of the pressure on small businesses due to the Coronavirus Pandemic.

This special modification in the tax code makes this deduction even more worthwhile to track and take into account while filing your taxes. Even if this deduction is reduced in the future, it is a valuable deduction to consider. Be sure to keep track of the amount spent (save receipts), who you were with, and the purpose of the business meal.

There are other factors to keep in mind for these business meals to be eligible to be deducted. First, the costs of the meals must be ordinary and necessary. The food and drinks can't be overly costly under the circumstances. The business owner or an employee needs to be present during the meal. Lastly, the other parties in attendance must be related to your business in some way, i.e. business associates, customers, potential customers, clients, employees, professional advisers, etc.

Employee Education and Training Programs

As a small business owner, your employees are one of the best things you can invest in. By enrolling your employees in certification, educational, or training programs relevant to your business, you will create an opportunity to help develop your employees and your business. Thankfully this investment in your employees and your business is also deductible! In addition, by sending employees to such training programs, they can gain access to opportunities to increase their skills and knowledge applicable to their role in your business. Educational and training programs can help boost employees' enthusiasm, job satisfaction, company loyalty, and morale. It will also increase their skill set, making them more valuable to your company.

An employee can feel an increased sense of pride in their work, knowing that their employer believes in them enough to send them to an additional training program aimed at enriching their skills and knowledge. In addition to this, learning new skills or information about their job will help increase cognitive development. Increased levels of cognitive development can lead to higher states of well-being, which can be associated with positive growth experiences associated with their work. All of this is a win-win situation. By sending your employees to additional training programs, you can increase their value to your business while also impacting their lives by improving their well-being in a multitude of ways.

In a time where trends are pointing towards younger people in the workforce being more transient in their employment, it is vital to consider how to retain high-value employees for more extended periods of time. By investing in developing your employees and business through additional employee education, you can increase your business' viability while also being able to write off this expense. This is an often-overlooked investment in your business and employees that can significantly impact your business and can also be deducted.

Cellphone and Internet Expenses

With the rise of the internet and the age of smartphones, we have become more connected with each other than at any other point in the history of our modern society. These tools allow us to communicate swiftly and effectively and have become essential for many businesses. Cellphone and internet expenses, as well as computers and software used for business, can be deducted from your tax return. In addition, you can deduct costs from your personal cell phone and internet service that you also use for business purposes. These deductions will require adequate documentation, however. If you use your personal cell phone's monthly minutes or unlimited plan for business as well as for personal use, you can calculate the percentage in which you use your phone for business and deduct that amount from your overall monthly cost. The same applies to expenses related to internet and computer usage.

This deduction can be difficult to keep track of, but if you practice using a log to record your cell phone and computer usage, this can be a great way to figure out what percentage of these costs you can deduct. Another option to track these deductions more efficiently is to have a separate business line or computer. This type of deduction can be challenging to track and is skipped by many business owners and independent contractors who use their personal cell phones, internet service, computers, and other technological devices for their businesses. These deductions can add up, though, and help reduce your overall tax burden in the long run.

Travel Expenses

Another valuable deduction to track is any traveling expenses related to your business. How relevant these costs will vary depending on how much you travel for your business. Some people will fly for business several times a month, and others may make trips back and forth through town a couple of times a week. These costs can add up, though, even if you're only running errands around town that are related to your business. If you spend on average $20 a week in gas to run errands related to your business, this will add up to $1,040 over the course of the year. These are costs that you can deduct, reducing your overall taxable income. Again, recording these expenses is a crucial component when planning on filing for these deductions.

Home Office Expenses

If you operate your business out of your home and have and have an area of your home that is solely dedicated to your business, you may qualify for the home office tax deduction. The space does not necessarily need to be an office to qualify. Other home business usage of the home can include storage space used to house inventory, space used to create your product, etc. You also don't necessarily need to conduct your business exclusively out of your home. If you conduct some of your business outside of your home, as long as your home is your principal place of business, you still may qualify for this deduction.

Home expenses that can be partially deducted can include mortgage interest, rent, utilities, homeowners' insurance, property tax, etc.

For a more detailed view of the home office tax deduction, please take a look at our article on Home-Based Business Tax Deductions.

Return to Overlooked Tax Deductions for Small Businesses - Part I

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