Running a small business comes with plenty of expenses, from software and advertising to professional services and business travel. Some of these expenses may qualify as tax deductions, but business owners can overlook legitimate deductions when they do not keep detailed records or understand the rules.
Here are 10 business expenses Chicago small business owners should review with their tax professional.
1. Home Office Expenses
If you regularly use part of your home exclusively and regularly for business, you may qualify for a home office deduction. Depending on your situation, qualifying expenses can include a portion of certain household costs.
The IRS has specific requirements for claiming this deduction, so keep documentation showing how the space is used for business.
2. Business Mileage and Vehicle Expenses
Driving to meet clients, visit suppliers, attend business meetings, or perform other qualifying business activities can create deductible transportation expenses.
Depending on your circumstances, you may be able to use the standard mileage method or actual vehicle expenses. Keep accurate mileage records and separate business driving from personal use.
3. Professional and Accounting Fees
Payments for professional services that are ordinary and necessary for your business may be deductible.
This can include accounting, tax preparation, legal services, and other professional fees related to operating your business.
Working with a CPA can also help you maintain better records and identify expenses that should be reviewed for potential deductions.
4. Advertising and Marketing
Getting your business in front of potential customers costs money. Website development, online advertising, print advertising, promotional materials and other qualifying marketing expenses may be deductible business expenses.
Keep invoices, receipts and payment records so you can substantiate your expenses.
5. Business Software and Subscriptions
Many businesses rely on accounting software, project-management platforms, cloud storage, website tools and other technology.
If these services are used for business purposes, qualifying costs may be deductible. Review recurring subscriptions regularly so legitimate business expenses are not overlooked.
6. Business Insurance
Insurance can be an important part of protecting a business. Depending on the type of coverage and your business structure, qualifying insurance premiums may be deductible.
Examples can include certain liability, professional and business property insurance expenses.
7. Employee Benefits and Payroll Costs
Businesses with employees may have deductible costs associated with wages, payroll taxes and certain employee benefits.
Maintaining accurate payroll records is important because these expenses can represent a significant portion of a company’s operating costs.
8. Retirement Plan Contributions
Contributions to certain retirement plans may provide tax benefits for business owners and eligible employees.
The rules vary depending on the type of retirement plan, business structure and individual circumstances. Discuss your options with a qualified tax professional before making decisions based solely on a potential deduction.
9. Education and Professional Development
Business-related education, training, conferences and professional development may qualify as deductible expenses when they meet applicable tax requirements.
The key is establishing that the expense has a legitimate connection to your existing business activities.
10. Business Travel and Meals
Qualifying business travel expenses may include transportation, lodging and other necessary costs associated with business travel.
Certain business meals may also qualify for a deduction, although specific limitations and documentation requirements apply. Keep receipts and records showing the business purpose of the expense.
Don’t Overlook the Importance of Recordkeeping
A potential deduction is only useful if you can properly support it. Chicago business owners should maintain organized records of income, expenses, receipts, mileage and other relevant documentation.
Avoid mixing personal and business expenses whenever possible. Separate business accounts and consistent bookkeeping can make tax preparation much easier.
Talk With a Small Business CPA
Every business is different. The deductions available to you can depend on your business structure, expenses, income, and other circumstances.
A Chicago CPA can help you review your business expenses, maintain accurate records, and develop a tax strategy designed around your business.
Need help with your business taxes? Contact a Chicago CPA to discuss your tax and accounting needs.