The Business of Deductions

Business owners, this one’s for you!  As the fourth quarter of 2019 glides underway, looking ahead to the 2020 tax season isn’t out of the ordinary.  In preparation for the season, organizing the “low hanging” opportunities first, otherwise known as simple, easy tax deductions, may quickly have a big impact on your business’ bottom line.  Here is an effective list of tax deduction strategies to keep in mind:

Phone and Internet services

C-O-N-N-E-C-T-I-V-I-T-Y is a powerful word, especially when it refers to connecting to internet and telephone service.  Cell phones, laptops, tablets, and even watches have become more than ways to communicate or tell time. For many small business owners and employees, internet connectivity and phone service are required standards for day-to-day operations.   Whether you are an employee working from home in an office-based position or are running your own operation, the Internal Revenue Service allows tax-payers to deduct internet-related costs on their tax returns, but possibly not 100% percent of the service fees. The IRS assumes that most households also use the internet for personal use and encourages deducting only a percentage of home internet service as exclusively business use.  

Cell phones, laptops, printers, and other electronic equipment

Internet connection is basically useless without the right equipment.  In the world of “high-tech”, new gadgets continue to evolve seemingly overnight, and smart phones, laptops, or iPads are no exception.  Uncle Sam wants you to succeed and equipment is crucial for running a successful business. For items costing $2,500 dollars or less, the IRS allows businesses to deduct the cost of the item in the first year, rather than depreciating these types of assets.  Proceed with caution when claiming a deduction for that new iPhone at 100 percent since most people use their cell phones for personal reasons too. Required business equipment, including high-tech gadgets, can pay for themselves come tax time if business owners can justify them as a “legitimate” business expense.   Legitimate deductions include items that are reasonable, necessary, customary, and at a usual expense for the business’ line of work.  

Travel and Meal Expenses

The Tax Cuts and Jobs Act of 2017  eliminated any deductions related to “entertainment” or “recreation” that business owners could previously claim as a write-off, although deductions related to travel and meals were kept intact.  Meals with potential clients or while traveling for business continue to be deductible at 50 percent but cannot be considered “extravagant”. A round of golf with a client may not be eligible as a legitimate business expense, but a burger in the clubhouse afterward can still be deducted by half.  Unlike meals, traveling for business is deductible at 100 percent including airfare, rental cars, hotel rooms or room rentals, ride shares, and taxi services if expenses are ordinary and necessary. For future audit protection, and as supporting documentation for your tax return, be sure to keep, take pictures of, or scan all receipts for your bookkeeper come tax time.  

Keeping good records and including a business purpose for every expense listed above are critical to claiming and tracking these deductions.  With this short list of ideas, every business owner can be focused on saving money AND making money. 

By Susan Amsler

October 13, 2019

Randolph Business Resources, LLC.
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