Owning your own business can provide opportunities to reduce taxes that you might not necessarily have as an employee, and the best place to start is to convert personal expenses that you would otherwise incur to legitimate business expenses. Below is a summary of some of the most common personal expenses that can be converted to a legitimate business expense.
Cell Phone
If you use your cell phone to make phone calls for your business, you can deduct a portion of your bill as a business expense. How much? The IRS says you can deduct a “reasonable” portion of the cell phone costs. To determine the reasonable portion, you can do a detailed analysis of each bill, or you can estimate a percentage based on an analysis of several months of cell phone bills, and apply that percentage to all your bills. Whichever method you use, just be consistent.
Internet
If you do business from your home, you may be able to deduct a portion of your home internet as a business expense. Like cell phone usage, the IRS will allow you to use a reasonable estimate for determining how much is personal and how much is business.
Home Office
If you use a portion of your home regularly and exclusively for your business, you can deduct a portion of your housing expenses as a home office expense. Read more about how that works here.
Auto Mileage
Any driving you do that is business-related and not commuting is deductible. To take an auto deduction based on the standard IRS mileage rate, you’ll have to keep a mileage log to back up your deduction, but using an app on your phone makes it easy.
Meals
If you travel for your business or take a client out for a meal, you can deduct 50% of that expense. Just make sure the meals are not lavish and that you separate the cost of the meal from any entertainment expenses. (Entertainment expenses are no longer deductible after the 2017 tax reform.)
Health Insurance
Small business owners can deduct 100% of the cost of health insurance premiums for themselves and their families. This includes dental, vision, and long-term care premiums. The mechanics of getting the deduction depending on your entity type, so be sure to check with our office to make sure you’re following the rules.
Retirement Savings
In contrast to the meager contribution limits of IRAs and even 401(k)s, certain small business retirement plans allow owners to contribute $57,000 or more of their compensation to a tax-advantaged retirement plan per year. The best plan for each business owner depends on a variety of factors such as the number of employees, but regardless, business owners have more flexibility when it comes to retirement savings. Find out about all of your options here.
Interest Expense
You may be able to deduct a portion of your home mortgage interest as part of your home office expense, even if you do not otherwise itemize deductions. Also, if you take out a loan or use a personal credit card to fund your business, you can deduct the interest for business-related debt as a business expense.
For all of these expenses, the key to making the conversion from personal to business is keeping good records and carefully documenting the business portion. For more information, please contact our offices.
Schanel & Associates is a CPA firm specializing in accounting, tax, and business valuation serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
