Changes in our global economy have birthed a surge in small business growth. Among those small businesses, 50% of are home-based according to 2022 Labor statistics. A vast majority of home-based businesses are startups, with limited knowledge or awareness of how to use tax credits to benefit their business during tax season.
There are some key benefits to operating your business from your home, mainly the ability to write off some expenses you may not be accustomed to. This blog will address some claimable expenses you might not have accounted or planned for as a new business owner.
Rent/Mortgage
If you are operating your business from your home, you should have a dedicated office space that you can claim. That means that you can claim a portion of your rent/mortgage as a business expense. You can also share the cost of other home expenses such as electricity, gas and internet, based on the percentage that is being used to run your business. Typically, when it comes to utilities such as phone and internet, you will need to open a business account separate from your home service to claim business credit.
Automobile Expenses
Do you travel to meet with your clients for business? If so, this is a business expense. That means you should be calculating your mileage every time you travel to conduct business. The 2023 rate for mileage is 65.5 cents per mile which means you can deduct this for mileage on all business travel. It is imperative that you track your mileage accurately to claim this credit. The easiest way to track your mileage is to use an app on your phone. There are many choices from MileIQ to many others based on your preference. Select an app that will work for you and use it to track your mileage from the start of your business trip to the end. Most applications will allow you to export all your data at the end of the year to calculate your annual mileage. What you will need to include in your records for taxes are:
· Where your trip started and ended, which your app should be able to track easily
· Total miles traveled
· Purpose of your trip
If you can keep track of this detailed information, you should be able to claim the mileage rate on your taxes.
Office Expenses
If you have a background in corporate America, then you are accustomed to being provided with basic office supplies such as paper, staplers, a copier and even a computer. However, when you become a small business owner, these expenses are now your responsibility. But here’s the good news! You can write them all off! Here are some examples of office expenses that you can write off for your home office:
· Paper
· Copier/Fax/Scanner
· Stapler
· Office Chairs
· Calendars
· Pens and Pencils
· Tape
· Filing Cabinets
These are just a few things that you can claim for your home office. Like your mileage, it is important that you keep the receipts from all these purchases to be able to claim it on your taxes.
Another office expense you want to claim would be any software expenses you have for your business. With many software applications moving to cloud or web-based platforms, it is likely that you will have a monthly recurring charge for most of your software applications. Whether it is a one-time cost or a recurring monthly cost, you will need to track these expenses as well. It is part of the cost of doing business and you will need to claim it on your taxes.
Startup Costs
Whether you’re operating a home-based business or not, the startup costs are usually the most expensive. Acquiring new customers for your new business, requires you to spend money on marketing and advertising initiatives.
In addition to advertising, training for new team members could be considered as part of your startup costs. Money paid to attorneys and consultants for business set up and possible market research are also included in a business’ startup cost.
While it is good learning about all of the tax credits you can claim on your taxes, the process can be a bit arduous. It is not expected for you to tackle this elephant all on your own. You need a reliable partner that you can work with to walk through this process and keep track of everything you need throughout the year, because the last thing you need is to feel the pressure of trying to organize all this data in January when tax season begins.
VAAS Professionals specializes in working with small businesses like yourselves to assist in managing the taxes and expenses it takes to run your business. Schedule some time to talk to a consultant today about how we can partner with you to put more money in your pocket this tax season.