You probably know that you can deduct salaries and wages, mortgage interest and taxes, office supplies, the cost of repairs and insurance and depreciation on property. But here are some commonly overlooked small-business tax deductions:
Home office deduction
Do you use a room in your home as your primary place of business, where you deal with patients, clients or customers? You might be able to claim a home office deduction on your personal income taxes, as long as you use part of your home exclusively for conducting business. But using a room as both an office and a place for guests to stay, for example, probably disqualifies you.
Capital losses, home office deductions and net operating losses are all overlooked deductions that can be carried over into future tax years to reduce taxable income. However, this only works if you use the actual expense method, since there's no carry-over for the simplified method.
You can deduct up to $5,000 in qualifying start-up costs and up to $5,000 in organizational costs. Both deductions phase out when your total start-up expenses or organizational costs hit $50,000. Each $5,000 deduction is reduced by the amount in start-up costs that exceed $50,000.
If you have more than $55,000 in expenses, no first-year deduction is allowed.
Losses on bad debts
The IRS defines a bad debt as one that was created or acquired in your trade or business, or closely related to your trade or business, when it became partly or totally worthless. Types of bad business debts include loans to clients, suppliers, employees or distributors. They become bad debts only after you have tried to collect on them for a reasonable period of time.
Tax, legal and educational expenses
In general, the fees paid to your accountant, lawyers or consultants that are "ordinary and necessary expenses directly related to operating your business" are deductible in the tax year they were paid. Other eligible deductions may include tax-preparation fees paid in the previous year, licenses and regulatory fees.