Tax time for Small Business Owners and Entrepreneurs trying to build their dream business can be challenging!

Often dreaded by most just trying to figure out "What can I write off?"

When I started my business in 2016 I knew there were some items that I could write off, however not until I hired a CPA (certified public accountant) did things become clear.

We will cover 10 key areas most small business owners and entrepreneurs overlook when filing their taxes.

My personal recommendation, if you are in doubt, is to consult with a CPA. Even if they charge a small consultation fee (most will not if you let them know you will be utilizing their services), it is well worth looking into.

In addition to the 10 key areas for small business tax deductions, I will share two of my most highly recommended tips at the end of this article.

For anyone operating a business from home, albeit full-time or part-time, this article will shed some light on just what types of items you may have been overlooking.

SHIPPING

If your business happens to include drop-shipping products, you may skip to the next category.

Fortunately, the IRS considers the cost of shipping your products an 'ordinary and necessary' part of your business.

Included in this category are postage, delivery charges and shipping meter costs or subscriptions.

In addition, any travel time taking your product to and from the post office, FedEx, or UPS can be a tax write-off.

(Note: If you offer free shipping for any of your online sales, actual shipping costs are deductible)

PACKAGING

The cost of getting your product delivered to your customer includes the necessary packaging to provide a safe and secure shipment.

Inclusive in this list are boxes, packing material, tape, labels, envelopes, paper, markers and even printer ink. (Be mindful to keep a file of all the receipts for the items you purchase)

If you are a small business owner on main street that offers product shipment, do not overlook the cost of your packaging ... it adds up quickly!

Your Home Workspace

If you are operating out of your home you are qualified for an e-commerce deduction.

There are 3 key factors that determine this as a deduction.

First: Is your work area is used only for business activities. (Corner of the dining room table doesn't qualify).

Second: Your area of work must be the principal place where you operate your business from.

Third: The majority of time in this area should be for the sole purpose of operating your business. There should be no other alternative place in your residence that you run your business.

There are two methods to compute your workspace deduction:

First (Simplified Method) : $5 per square foot used as business property (up to 300 square feet)

Second (Regular Method)* Calculate the percentage of your home's overall square footage then apply to your home expenses such as rent, mortgage interest, property taxes, heat, water, electricity that make it possible for you to occupy your home.

The simplified method will require you to fill out the appropriate worksheet on Schedule C of tax form 1040. (*note: The regular method requires you to use Form 8829)

Be sure to maintain copies of your work schedule from your home workspace and have pictures to prove that the area is used as such.

Utilities

Certain Utilities can be deducted from your tax return if you are utilizing the aforementioned "Regular Method" of calculating your home office expense.

Heat, water and electricity can be deducted based on the percentage your workspace is compared to your total home's square footage. (ex: If your office space is 15% of your total home footage, you can also deduct 15% of your Heat, Water and Electricity expenses). If you are renting a coworking space and pay part of the utilities, you may be eligible to deduct (again consult with your CPA if unsure).

Legal Fees

If you have hired or retained an attorney to perform certain services for your business or represent you in court, you are eligible to write off their fees. This can include negotiating leases, filing copyright and trademarks and preparing contracts for your business.

Bookkeeper, Accountant and Tax Consultant

The IRS allows you to utilize a "Professional Service" deduction. This deductible expense applies to a variety of professionals who assist in everything related to small business finances.

The fees of CPAs, bookkeepers (online and off), accountants, tax consultants and business lawyers, can be qualified as a deductible business expenses.

MARKETING

Now we cover some of the many areas of business advertising.

First and foremost, the cost of advertising your business IS tax deductible.

This encompasses the cost of placing the ad as well as any fees you may have to pay for the design or copyrighting for your advertisement.

If you hire a copywriter, designer, or professional marketer, you can deduct their wages/fees as you would any 1099 worker.

So whether you advertise in a local newspaper, Facebook, Instagram, Google, and even printed flyers you mail out, keep track of all the costs associated.

Not keeping track of and overlooking everything your business advertising entails, is one of the most overlooked areas that entrepreneurs and small business owners miss out on.

Marketing Tools and Services

Any business tool and service you use to help automate your business or your marketing strategy can be a deduction.

Online Entrepreneurs and Small Business owners just starting out, overlook this key area when it comes to taxes.

Monthly or yearly subscription costs associated with CRM's, sales funnel builders, click tracking software and various auto-responders are all deductible.

(Don't forget your monthly Zoom subscription fee's to host meetings and/or webinars)

Website Fees

Whether you are a Shopify owner, entrepreneur, or small business the fees associated with creating or maintaining a website are considered an "ordinary and necessary" expense for running your business.

Inclusive in this category are:

Domain name and Webhosting, SSL certificates, design templates, stock images, chatbots, design specific apps and shopping cart features.

Education

Continuing Education is a critical aspect for every Small Business owner or Entrepreneur.

Any classes online or off that are relevant to upgrading your business skills are deductible as long as they are taken to enhance how you operate your day-to-day business.

Classes taken to become 'certified' in your particular niche (i.e. Coach, Consultant etc.) are deductible.

Even the not-so-evident courses can be deducted. (Some Examples: You take a special photography course in order to improve your product picture-taking skills. SEO courses to optimize the presence of your website online. Seminars on business building tips, marketing and traffic generation, etc.).

If an in-person course is taken, the transportation to these courses can be qualified as a travel expense. (Be sure to keep track of mileage, tolls, etc.)

Recommended Tips

The proper bookkeeping and staying up to date with it monthly can help prevent the overwhelm of tax time.

Utilizing a CPA is highly recommended, especially for Entrepreneurs just starting out as well as the new Small Business owner opening their shop on Main Street.

Over the years since I started my business, my Top Two recommendations are really quite simple.

First: Only use one credit card and bank account to handle your business transactions. Most credit card companies break down your charges by category. For the purposes of having your expenses readily available for your accountant, or in the event, you are audited, presenting statements from one or two sources is easier than a box full of multiple receipts.

Second: Keeping an organized spreadsheet of your expenses. Whether you use an expense ledger or a bookkeeper, this is extremely important. Knowing where you are monthly in line with your budget, prevents heart attack when you total up your business expenses come tax time. (see our free downloadable spreadsheet above for business expenses and building operating expenses)

Yes, these two tips may seem quite simple, yet if utilized, your tax time stress level will be kept to a minimum.

In Summary:

Regardless if you are a Small Business owner with a physical store or shop, or an online Entrepreneur building your dream business, I highly recommend you seek the advice of a tax professional or CPA.

If you are fortunate, like I have been, to connect with a CPA that you can build a long term business relationship with, it will prove beneficial for many years to come.

Running a business is stressful enough as it is, knowing what you can deduct will help save you money not only this tax year, but will give you insight to how you budget your coming business expense.

Disclaimer: Again I am not a tax professional, just a small business owner who has learned a lot on my entrepreneurial journey, and wanted to share some insight.

As always, my very best to you for continued success and happiness in business and in life!