7 Common Business Expense Write-Offs Small Business Owners Forget

by | Mar 31, 2022 | Accounting

Write-offs are one of the biggest advantages of running a business. Whether you run a service-based business or are a merchandiser, taking advantage of all the available write-offs your business qualifies for is a great way to minimize your tax bill and ensure your business runs smoothly. In this article, we will discuss 7 common business expense write-offs small business owners forget.

What Is A Write-Off?

A write-off is a business expense that is deducted from your business revenue that reduces your taxable income. Another common term for write-off is tax deduction. These terms can be used interchangeably, so don’t worry about confusing the two when you run across them.

For a business expense to qualify as a write-off, the expense must be ordinary and necessary to running your company. Ordinary just means that similar companies in your industry use assets like the one you purchased. Necessary means the expense will help your business operations generate revenue.

For example, suppose you run a service-based business that specializes in mobile pet grooming. You decide a bigger van can help operations run more effectively and efficiently so you purchase one. Is the van’s cost deductible?

The cost of the van is likely deductible as other mobile pet grooming businesses use similar vans and the new van will help you reach more customers, helping generate more revenue. If you purchased a motorcycle instead, the motorcycle’s cost is unlikely to be deductible as it is neither common nor necessary for pet grooming businesses to succeed.

What Are Common Write-Offs Small Business Owner’s Forget?

1. Home Office Deduction

The home office deduction is the first common write-off small business owners forget. Once understood, this write-off is a great way to reduce your tax bill.

For example, suppose you run a service-based business and have a home office. The home office measures 300 square feet. The IRS allows you to write-off $5 per square foot of your home office with a cap of $1,500. As long as you perform management activities such as payroll or client billing, your home office expense qualifies for a write-off.

2. Professional Fee Write-Off

As a service-based business owner, you likely consult professionals such as accountants and lawyers while running your business. Deducting professional fees is a common write-off small business owners forget. Even if you do not use these services often, it is a good idea to get in the habit of writing off all qualified expenses, including these professional fees.

3. Mileage Write-Off

Mileage expense is the next write-off small business owners forget. Let’s go back to our previous example where you owned a service-based pet grooming business. Because you drive to meet clients and perform services, you are eligible to write-off the miles you drive for business.

The mileage write-off rate for 2021 is $.56 for every mile driven for business use. So if you drive 100 miles each day for business, you can write-off $56.00 in mileage expenses.

4. Advertising and Marketing Expenses

Effective advertising and marketing is essential for any business, whether it is a service-based business or a merchandiser. You can write-off advertising and marketing costs if they are ordinary and necessary. This is the same definition as we discussed above, so if the advertising expense helps your business generate revenue it is likely deductible.

Because marketing methods are often changing, this is another write-off small business owners forget. These expenses include social media marketing and other similar forms of marketing, and can add up to a significant tax reduction depending on your company’s marketing strategy.

5. Cell Phone and Internet Expenses

You can write off the cost of your cell phone and internet if it is exclusively used for business purposes. If you mix personal and business use, the amount of business use is tax deductible.

For example, your cell phone and internet bill is $100, but you only use them for business purposes 50% of the time. In this case, you can write off $50 of the $100 cost.

The cell phone and internet expense is a common write-off small business owners forget as they often use the same phone and internet for business and personal use. If you choose to use the write-off it is important to keep good documentation to ensure you deduct the correct amount.

6. Education and Training Costs

Improving skills related to your business through education and training is a great way to stay at the top of your industry. You can write off the cost of business education and training if the classes maintain or improve skills required to run your current business.

For example, suppose your service-based business provides web development services to other small businesses. Classes or seminars related to improving web development skills or web development in general are deductible as business education expenses.

7. Taxes and License Fees

The cost of business licenses related to your business is a qualified write off, but is another common write-off small business owners forget. You can also write-off various taxes paid. Here is a quick list of taxes and license fees that can be written off:

  • Sales tax
  • Fuel tax
  • State income taxes
  • Real estate taxes on business property
  • Excise Taxes

 

Write-offs are important to reduce the amount of tax your small business pays as much as possible. There are many write-offs small business owners forget, so it is always a good idea to look at each of your business expenses and determine if it qualifies as a business write-off.

If you have more questions about write-offs or other tax and accounting issues, be sure to reach out for tax planning services. As we can help you business reduce its tax liability year-round.