Category: Taxes

There are many reasons why you may want to use a personal credit card for your business expenses. The biggest reason is convenience. You can use one card for both business and personal expenses, making tracking both types of spending easy.

It also can be a great way to accumulate rewards points and other perks that may not be available on a business card; however, some risks are involved. Depending on your business policies, there may be several reasons you shouldn’t.

In addition, it’s an inefficient accounting practice to run your business expenses through a personal card, making it hard to track business expenses, especially when tax season comes.

So should you use your personal credit card for business? Here’s everything you need to know.

Using a Personal Credit Card for Business

It’s easy to see why many small businesses prefer personal credit cards over business ones: they offer more favorable terms and rewards than traditional business cards.

For example, most major credit card issuers offer lower APRs (annual percentage rates) on their cards than on their business cards. And some don’t charge an annual fee at all (although there are exceptions). In addition, many personal cards come with generous rewards programs that can help offset the cost of travel and other expenses typical for small businesses.

However, filing small business taxes can be a nightmare if you manually track business versus personal expenses. Unless you have clear separation, you could end up in a head of trouble with the IRS.

In many companies, employees can use their personal cards for business expenses, then file for reimbursement afterward. This shouldn’t be a problem if the user is authorized and there’s a simple expense reimbursement process.

Pros and Cons of Using Personal Credit Card for Business

Many small businesses use a personal credit cards for business expenses. The perks are clear: You can earn rewards and avoid costly merchant fees. But using your personal card for business has downsides, too.

For example, the interest rate on your personal credit card will likely be higher than the rate you’d get with a small-business loan or line of credit — even if you have great credit.

In addition, you’ll probably have to pay annual fees on most cards designed for businesses. And while many cards offer valuable rewards programs and other perks, they may not cover everything you need them to cover as a business owner.

Reasons Why You Might Use a Personal Card

There are a few reasons why you might use a personal credit card instead of a company credit card.

Convenience

There are many reasons why you might use a personal credit card. The most common reason is convenience. You may find it is more convenient to use your personal credit card for business expenses than the company’s credit card.

For example, if you travel for work, you may be able to use your own rewards card on flights, hotels, and rental cars. If you have an employee expense account at work, it may be easier to use your card than to submit receipts for reimbursement later.

Benefits

Rewards are a big draw for many people, especially if they’re loyal customers of the issuing bank. Many personal cards come with rewards programs to earn points or cash back on purchases at specific merchants or categories of merchants.

For example, if you always buy groceries at Walmart and fill up your gas tank at Exxon Mobil stations, you may benefit from signing up for cards that offer rewards points on those purchases.

Many credit cards offer cash back, miles, or points that can be redeemed for travel or merchandise. The most popular rewards categories include grocery stores, gas stations, and restaurants. The rewards you earn on your card can vary depending on the issuer’s reward program.

Necessity

You may not have a corporate credit card or line of credit, either because you have been unable to apply and qualify for one or simply didn’t know how to.

The Risks of Using a Personal Credit Card for Business

While many people use their credit cards for business expenses, there are several reasons why it might not be the best idea. 

Personal cards are unsecured by collateral, which means they don’t offer any protection against loss if you fall behind on payments or fail to pay off the balance in full each month.

This is a risk because it means that if you don’t pay off your balance in full every month, interest will continue to accrue on your account and make it harder for you to get out from under your debt.

Negative Impacts on Personal Finances

Using a personal credit card can have negative impacts on your personal finances.

Using your personal credit card responsibly will help maintain or improve your credit score over time, but only if you pay off the balance every month and avoid carrying a balance from month to month (which would hurt your score).

If you don’t pay off your balances immediately after making purchases, this could negatively impact your score, especially if you do it often enough.

In addition, interest rates on personal credit cards can be very high — as much as 25 percent or more in some cases — so even if you pay off your balance each month, you could end up paying hundreds of dollars in interest charges over time.

That can put a big dent in your cash flow if you don’t have enough money to cover the purchases in advance.

Finally, when using a personal credit card, it’s easy to forget that you’re spending money. It’s just a swipe of plastic; the money is gone before you know it. Studies show that people spend more when using a credit card than when paying with cash or debit cards.

Uncomfortable Dynamic With Employees

It’s easy to see why a business might want to their employees to use their personal credit cards for business. After all, they’re convenient and easy to administer.

Employees can use them for travel and entertainment expenses or reimbursements or even make purchases on behalf of the company.

But there are some severe drawbacks to using personal credit cards for business expenses. The first is privacy concerns. Personal credit cards don’t come with the same protections that business credit cards do, so there’s a risk of identity theft when someone gets hold of your personal information through an online purchase or by sharing a receipt with another colleague who may have access to your email address or social media profile page.

Another risk is that if you use a personal credit card for business expenses, your employees could be confused about who owns what. It’s hard enough for employees to understand how their salaries work or what benefits are available through their employer. Adding another layer of complexity could make them make mistakes or feel like they aren’t being treated fairly by their employer.

Tracking Business Expenses Is Harder

If you use your personal credit card for business expenses, it can be hard to keep track of all the charges. This is especially true if you don’t think about this ahead and set up a separate account or card just for business purposes.

If you don’t have a system in place, your personal credit card statements may look like a jumbled mess of personal and business expenses. You might have trouble figuring out which charges are legitimate business expenses and which ones were simply personal expenses paid with the wrong card.

In some cases, you may even find that some business-related charges haven’t been reimbursed, leading to confusion about what was paid for what purpose.

A better solution is to get an additional card specifically for business use so that there’s no confusion about which payments are related to which activities.

Preparing Your Taxes Is More Difficult

If you use your personal credit card regularly for business purchases and then try to claim them as deductions on your taxes, it will make tax preparation more difficult — especially if you don’t keep good records. 

Businesses are entitled to deduct certain expenses from their taxable income. Using your personal credit card for business expenses may not qualify for these tax deductions. For example, if your company buys office supplies and pays with your personal credit card, you aren’t likely to be able to write off those purchases on your taxes.

However, if the company pays with a corporate card and files an expense report with the bank, you could receive a reimbursement check and then use that money to cover those expenses.

Your Legal Protections Are Weaker

 One of the most important things to consider when considering using your personal credit card for business is that your legal protections are weaker. If you run a small business, you may feel more comfortable using a credit card issued by your bank or credit union than one from a third party.

If something goes wrong with a third-party card — if there’s a dispute over charges,

 or if someone steals your identity and racks up charges on your account — it’s up to you to resolve the problem. With a card issued by your bank, you’ll have more protection, including the right to dispute any fraudulent charges and get them removed from your bill.

Obtaining Financing Is Harder

Businesses often struggle to get bank financing because banks want to see a good track record of successful business ventures before they lend money.

Banks also want to know that they’ll be able to collect on the debt in case things go south. If you’re using your personal credit card for business, it may be harder to obtain financing due to these concerns.

Advantages of Using a Business Credit Card

 Business credit cards are one of the best ways to build business credit. If you’re an entrepreneur looking to start a new business, or if you’ve already got a company up and running and want to expand your business credit line, a business credit card can help you do that.

A business credit card can be a great option if you’re looking for a way to earn rewards, manage expenses, and track spending. The main advantage of using a business credit card is that it allows you to separate personal and business spending.

If you want to make purchases on behalf of your company, it’s easier to do so by charging them on a single card rather than using multiple cards or cash.

These cards offer more benefits than personal credit cards, such as purchase protection and extended warranties. They also tend to offer better interest rates and higher rewards rates than personal cards.

Business credit cards are usually designed to help small businesses manage their finances and keep track of expenses. You may qualify for one of these cards if you’re a sole proprietor or partner in a small business.

Build Business Credit

The main reason business owners use these types of cards is because they help them build their personal credit history.

Businesses often need to borrow money for various reasons, such as purchasing inventory or equipment, and creditors want to see that the company has successfully paid off its debts in the past.

A good track record with a business credit card can help show potential lenders that your company is reliable and responsible in managing its finances.

IRS Audits

The most important advantage of using a business credit card is that it can help reduce your risk of an IRS audit. According to IRS rules, businesses must keep receipts for all purchases made on behalf of their companies, including travel expenses and office supplies purchased with company funds.

These receipts are used when filing taxes each year so that the IRS knows what expenses were paid for by the company and which ones were personal expenses paid for out-of-pocket by employees themselves.

If an employee uses a personal credit card instead, they may face trouble during an audit when asked about specific purchases made on behalf of their company. Using a business credit card helps you keep track of your expenses and income more efficiently.

When it comes time to do your taxes each year, it’s much easier to add up all the charges and subtract them from your income when they’re all in one place. This is especially helpful if you’re audited by the IRS. If they ask for receipts for specific items, they’ll be on your statement, so it’s easy to pull them up and print them out if necessary.

Improved Security

Business credit cards are safer than personal cards. Business credit card issuers are subject to stricter security requirements than personal credit cards.

The business card issuer must comply with the Payment Card Industry Data Security Standard (PCI DSS). The PCI DSS is a set of information security standards developed by major payment card companies.

Credit card companies have prioritized security and are constantly improving their systems to protect consumers’ information. That means you can feel confident that your customer’s personal information is secure when they pay with their credit cards.

Low Costs

One of the most significant advantages of using a business credit card is that it helps lower costs. Businesses can use these cards to pay for travel expenses, office supplies or other costs that would otherwise be paid by writing checks or using personal credit cards.

This prevents businesses from having to pay fees for each charge they make. It also helps them avoid incurring interest charges on those items if they have outstanding balances that aren’t paid off immediately.

You might also be able to take advantage of an introductory rate that’s only available for a limited time. This can help you save money on interest payments if you use the card responsibly.

Cash Back Incentives

Many cards offer cash back incentives when you use them for certain purchases. If you want to earn cash back on your purchases, check the terms and conditions of your card to see what kind of rewards it offers.

You may also qualify for additional rewards if you’re a frequent flyer or belong to specific organizations.

Partnered Promotions

Business cards may offer more rewards than personal cards, especially if they’re tied to loyalty programs like Delta SkyMiles or Hilton Honors.

Some business cards also work with other companies rewards programs so that you could earn points from multiple sources with one purchase. This can be particularly useful if you have a small business because discounts and services are often offered exclusively to small businesses through partners such as Visa and American Express.

Solve Your Business Credit Troubles Now

 Many small businesses use personal credit cards. This practice has advantages and disadvantages, and it’s essential to understand them before deciding.

The advantage is obvious – if you use a personal credit card and pay it off in full each month, you’ll get rewards points or cash back. You can also earn airline miles, free hotel nights, and other perks from your business travel.

This can add up to hundreds or even thousands of dollars each year for a small business owner who travels frequently.

But there are also some disadvantages to using a personal credit card for business expenses. For one thing, if you carry balances on your accounts, you may risk damaging your credit scores if your business stops paying its bills on time (or at all). 

In addition, if you’re not careful about tracking expenses, it’s easy to lose track of how much money you’ve spent on behalf of the company — which could lead to trouble with the IRS down the road if they discover that you’ve been using non-deductible personal expenses as tax write-offs.

The 1099 form is a document that reports a person’s income to the IRS. It’s used for reporting certain types of payments, such as interest, dividends, and freelance paychecks. If you get paid more than $600 in total from any one company during the year, they’re required by law to send you a 1099 form at the end of the year — even if you’ve already filed your taxes.

You might have heard the term 1099 form before and wondered what does that mean? This article explains the basics of this type of tax document and how to fill it out.

What Is a 1099 Tax Form?

The 1099 form is one of the most basic forms to track your business income and expenses. It’s also one of the most confusing since there are so many different kinds of 1099 forms.

1099 is used to report income to the IRS that was paid to a person or entity. The IRS uses the information on these forms to help determine how much income tax you owe.

You’ll receive one or more 1099s each year, depending on how much money you made in a given tax year. The IRS requires that companies send out 1099s for any amounts over $600 for services rendered, including rent and interest payments, dividends, and stock sales.

In addition to reporting the total amount of money paid out, 1099 forms also include information about the source (employer or contractor), type of income, and whether it’s from wages or non-wage payments such as dividends or interest earned on investments.

If you’re a small business owner, chances are you’ll be dealing with Form 1099-NEC, so we’ll focus on that one.

What Is a 1099-NEC Form?

 A 1099-NEC form is a tax form used to report amounts paid to nonemployees, including independent contractors, freelancers, and other workers who are not covered by social safety net programs such as unemployment insurance. A 1099-NEC is also known as a “nonemployee compensation” form.

For example, if you hire an independent contractor or freelancer to work on your business, you’ll need to work with your accountant or CPA to file these forms annually.

The IRS requires that you report all non-employee compensation, including the payments made to these people. If you fail to do so, you may be penalized by the IRS.

The IRS uses it when they need to track payments made to nonemployees to tax those individuals accordingly. You’ll only get this form if you paid someone who was not an employee of your company at least $600 during the year.

Issuing a 1099-NEC ensures that everyone pays their fair share of taxes on income earned through employment or self-employment.

Independent Contractor Definition

An independent contractor is a worker who meets the IRS criteria for being self-employed, which means the worker is responsible for paying their taxes and has more control over how they perform the work.

Businesses often hire independent contractors to perform copywriting, consulting, accounting, and IT support. They’re not employees because they don’t receive many of the benefits of a traditional job, including health insurance, retirement benefits, and overtime pay.

Who Gets a 1099?

The 1099 Form is a tax form sent to independent contractors, freelancers, consultants, and other nonemployees. The Internal Revenue Service (IRS) requires businesses to issue 1099s to individuals who receive $600 or more in payments during a tax year. Companies are also required to report the gross amount of payments made to contractors on Form 1099-MISC.

If you’re a business owner and hired an independent contractor, and paid them more than $600 over the year, you’re responsible for issuing them a 1099-NEC.

If you worked as an independent contractor for multiple clients during the year, each client would send you Form 1099-MISC at year-end detailing how much they paid you. You must report this income on your tax return if it totals $600 or more.

Who Needs to Fill Out a 1099 Form?

The Internal Revenue Service requires you to file Form 1099s for independent contractors and other parties who provide services to your business.

 If you are a business owner and paid out more than $600 to an independent contractor, you need to fill out a 1099 form.

If you’re not sure whether or not you need to file a 1099 Form for your freelancers, look at the following list. If any of these descriptions apply to your situation, then you’ll need to fill out a 1099:

• You paid someone more than $600 for services performed as an independent contractor.
• You paid someone more than $600 for services performed as a subcontractor.
• You paid someone more than $600 for performing services as an attorney or doctor who isn’t incorporated or registered as an LLC.

Why the $600 Cut-off Matters

In the United States, the Internal Revenue Service requires that anyone who pays a vendor over $600 in a year file a 1099-MISC form. This includes freelance writers, photographers, accountants, and other professionals who work as independent contractors.

The requirement is intended to protect both parties from tax evasion by making sure you report all of your income to the IRS. It’s also meant to prevent taxpayers from claiming deductions they don’t deserve.

Skip Filing 1099s for Corporations

If an independent contractor is registered as a C corporation, you don’t need to file Form 1099. You can see whether a contractor is incorporated based on the information on their Form W-9. You can request one of these forms from any contractor when you hire them.

Don’t File 1099s for Employees

The IRS has strict rules for distinguishing between employees and nonemployees. They are always on the lookout for business owners who misclassify workers as independent contractors (typically to avoid paying social security and medicare taxes.)

That said, it is essential that you file a Form W-2 to report wages, tips, and other compensation you paid to an employee during the tax year.

It’s also important to note significant penalties for misclassifying employees as independent contractors. 

Don’t File 1099s for Contractors Hired Through Freelance Marketplaces

Freelance marketplaces like Fiverr and Upwork dont provide tax documents because they are technically payment settlement entities. Businesses do not need to offer 1099-NEC forms to workers they hire on these platforms.

Do Partnerships Get a 1099?

In general, if you pay less than $600 per year to an entity involved with your business, it’s not necessary for you to issue them a 1099 form. This includes payments made for services rendered or goods sold. However, there are exceptions to this rule, and it’s best to check with your accountant before deciding whether or not you need to fill out a 1099 Form for your partnerships.

How to File a 1099 Form

There are two copies of Form 1099: Copy A and Copy B.

Copy A of Form 1099 is used to report nonemployee compensation. This includes payments made to independent contractors and prices made to other payees who are not business employees. If you hire an independent contractor, you must report what you pay them on Copy A and submit it to the IRS.

The IRS requires you to file Copy B of Form 1099 for each person or company to whom you have paid nonemployee compensation during the year. You must send Copy B of Form 1099 to your payee by February 1 (for payments made in the previous calendar year).

If you fail to send Form 1099-MISC on time, you may owe a penalty even if the payee does not report your income or fails to file a tax return.

If you’re an independent contractor and receive a Form 1099, Copy B from a client, you do not need to send it to the IRS. You report the income listed in Copy B on your income tax return.

Gather the Required Information (W-9 Request)

You’ll need the contractor’s name and address and their Social Security number or taxpayer-identification number. You’ll also need:

• The total amount you paid them during the tax year
• Their taxpayer identification number

If you don’t have this information, you can use the IRS’s free e-file system for paperless filing with Form W-9S or Form W-9 so that the contractor can provide it to you electronically and avoid having to mail the form back to you by mail.

Once you have all of the required information, you can then use it to fill out Form 1099-NEC.

Submit Copy A to the IRS

Once you have filled out all the required information, Copy A of Form 1099-NEC must be submitted to the IRS by January 31, regardless of whether you file electronically or by mail.

You can download and print a version of Copy A from the IRS website.

Submit Copy B to the Independent Contractor

Once you fill out and submit copy A, you can send Copy B to all of your independent contractors no later than January 31.

You can download and print a version of Copy B from the IRS website and send it to your independent contractor. 

Check if You Need to Submit 1099 Forms With Your State

Depending on your business, you may also have to file 1099 forms with the state. It’s best to check with a CPA and ensure you’re compliant with your state’s 1099 filing requirements.

How to File 1099s Online

Copy A

You can e-file Copy A of Form 1099-NEC through the IRS Filing a Return Electronically (FIRE) system. This form must be produced with the help of compatible accounting software.

Copy B

You can email Copy B to your contractor, but first, you need their consent.

Consent should be obtained to prove the contractor can receive the form electronically. If you’re planning to email them a copy, you should contact them via email to obtain consent.

When Are 1099s Due? (2023 Deadlines)

Filing Copy A with the IRS is due February 15, 2023.

The deadline for sending Copy B of Form 1099 to your contractors is February 15, 2023.

What if You Don’t Receive the 1099 From a Business?

If you don’t receive a 1099 from a business, you should contact them directly to ask if they sent it. You can use the IRS’s Where To File 1099s tool to determine if a company has listed your Social Security number on their 1099 filing. If they haven’t done so, you may need to call them and ask for it.

What Happens if You Miss the 1099 Filing Deadline?

If you miss the deadline for submitting your 1099 forms, you may be surprised. The IRS is serious about catching taxpayers who fail to report income.

You will have to pay interest on the taxes you owe, but you could also face penalties for late filing and late payment.

You will have to pay the following IRS penalties for each late 1099 form:

• $50 if you file within 30 days
• $100 if you file more than 30 days late but before August 1
• $260 if you file on or after August 1

Tax deductions for small businesses are an essential part of any business owner’s income tax planning. As a small business owner, you’re eligible for some deductions that you would not be able to take if you were an employee.

You may also qualify for other deductions that aren’t available to self-employed people or independent contractors. Knowing which deductions you are eligible for and how to claim them on your taxes.

There are steps you can take to reduce your tax burden, and by taking advantage of these deductions and credits, you’ll be able to keep more money in your pocket. If you are a small business owner, you can benefit from using these 16 significant tax deductions for small businesses. 

What Exactly Is a Tax Deduction?

Tax deductions are reductions in your taxable income. Deductions reduce the amount of money that you owe in taxes, so they can help you save money on your tax bill.

The IRS defines a tax deduction as an expense that reduces your taxable income. The keywords are “reduces” and “taxable income.” Tax deductions don’t reduce your total costs; instead, they allow you to deduct part of those expenses from your gross (total) income.

For example, if your business earns $100,000 in revenue and has $50,000 in expenses, it will be taxed on $50,000 of income. If you have $5,000 worth of business-related expenses, you can deduct those expenses from your $50,000 taxable income to arrive at your final figure — $45,000. What you make and what you owe is your “taxable income.”

Deductions come in many forms: business expenses, charitable donations, mortgage interest payments, and more. Tax deductions are an essential consideration for small businesses because they can lower your tax bill significantly.

How Does Tax Deduction Save You Money?

A tax deduction is an adjustment made to your taxable income. If you have an expense that doesn’t fall under one of the other allowable deductions (medical expenses, alimony, etc.), it may fall under a business tax deduction.

Deductions reduce your taxable income by specific amounts based on certain criteria set by the IRS. For example, if you’re self-employed or have a lot of medical expenses, then those expenses can count as deductions for your taxes. All deductions reduce your taxable income, meaning less money will be taken out from your paycheck for taxes each year. 

For example, if you make $50,000 per year and have some business expenses that add up to $3,000, those expenses will be subtracted from your total income (or deductible). Instead of paying taxes on $50,000 in earnings, you would only pay taxes on $47,000 in payments! That’s why it’s important to claim every possible deduction when filing taxes as a small business owner: they could save you thousands of dollars every time you file your taxes.

The tax deductions available to small businesses can be a valuable tool for lowering your tax bill. These deductions can also help you use less of your profits to pay taxes, leaving more money in your pocket.

Staying On Top of Your Deductions

If you own a small business, you likely have many expenses to deduct from your income. However, with all the deductions available, it can be challenging to know what is legitimate and what isn’t.

That’s where bookkeeping comes in.

To stay on top of deductions, you need to keep good records. If you’re a small business owner, keep copies of your receipts and invoices. As a small business owner, you’ll also save paperwork related to your business vehicle and assets. Be sure to also keep letters from vendors.

One way to stay on top of your deductions is by using accounting software like QuickBooks. These programs allow you to keep all of your financial information in one place and automatically calculate the deductions you’re eligible for based on data from previous years. If you want everything done for you, you can hire an online bookkeeping service or accounting firm to keep all the records. 

You may already know the many tax deductions if you own a small business. But it’s essential to be mindful of these deductions — and to make sure you’re keeping track of them — because they can help save you money when it comes time to file your taxes.

Understanding Bookkeeping

When you’re starting a small business, it can be easy to overlook the tax implications of your new venture. But understanding the basics of bookkeeping is one of the most important things you can do for your business.

There’s a lot to keep track of: invoices, receipts, bills and payments, salaries and expenses — not to mention the daily details of running a business. If you don’t keep good records, it’s easy to overlook critical deductions that could save you thousands in taxes each year.

If you want to claim tax deductions on your small business income, you’ll need to keep good records throughout the year. It’s also important to know what tax deductions are available to small businesses and which ones benefit entrepreneurs running their ventures.

If you’re ready to learn more about accounting, here are 16 tax deductions specifically for small businesses.

Advertising and Promotion

Advertising and promotion costs are 100% deductible. This includes the cost of advertising your business, designing a website, and more. This also includes things like:

• Hiring someone to design your company logo
• Shipping cards to clients
• Sponsoring a networking event
• Creating and launching a new website
• Costs associated with printing business cards
• Running a social media marketing campaign

However, you can’t deduct the cost of entertaining customers or employees at sporting events or concerts.

Business Meals

You can deduct 50% of your food and entertainment costs, but only if it’s directly related to your business and as long as they’re with clients or employees and aren’t excessive. If you buy a meal for a client or customer, the IRS requires that you have “more than a general expectation of getting income or some specific benefit at some future time.” In addition to this:

• The meal expense must be necessary to carry out your business goals
• The meal cannot be extravagant in any way
• The business owner must also be present during the dinner.

It’s also good to know that you can deduct up to 100% of the cost of providing meals to employees, such as burgers and drinks, if your team is working late.

Meals that you provide at office parties are also 100% deductible. 

This is among the most popular small business tax deductions because it’s easy to claim. Keep track of all the costs and what you spend on meals, and you can keep some extra cash later down the line. 

Business Insurance

Business insurance is a considerable expense for small businesses. Fortunately, it’s also one of the most tax-deductible items on your list.

Business insurance can include general liability, property, casualty, workers’ compensation, etc. If you own your business, you’re responsible for paying premiums and deducting them from your taxes. But if you’re self-employed and work as an independent contractor, you’re not allowed to deduct the cost of insuring yourself.

The amount that can be deducted varies depending on your insurance policy and how much coverage it provides. The IRS allows you to remove a percentage of your premium payments for most business insurance policies — including fire, theft, burglary, and liability coverage — up to certain limits per year.

Business insurance deductibles may also include:

• Liability coverage
• Property coverage for your buildings, furniture, and equipment
• Vision and dental insurance for employees
• Workers compensation coverage
• Life insurance for employees
• Auto insurance for business vehicles

Bank Fees

Having separate bank accounts and credit cards specifically for your business is always a good idea if you are a business owner. If you use your bank account to conduct business, you can deduct your payment fees. 

These include monthly maintenance fees, ATM fees, wire fees, and overdraft fees. You can also deduct any expenses your bank charges for closing an account.

It’s important to know that you cannot deduct fees related to your banking accounts or credit cards as these are regarded as personal expenses.

Business Use of Your Car

Business use of your car can be a tricky deduction, but it can also save you money. If you need a business vehicle, the IRS allows you to deduct the cost of mileage, gas, maintenance, repairs, and depreciation of your car. The IRS also allows you to remove any tolls and parking fees.

The IRS allows the following deductions:

The standard mileage allowance allows small business owners to deduct 58.5 cents per mile for business miles driven in 2022, up from 56 cents in 2021. The IRS has specific rules about when to claim this deduction. To calculate your deductible expenses, multiply the miles driven for your business during the year by the rate set by the IRS.

Gasoline and oil costs. You can deduct what you paid for gas and oil during the year, but only if they’re used to generate revenue for your business.

Insurance premiums. You can deduct the cost of liability insurance, collision coverage, and comprehensive coverage (if your vehicle is used for business).

Repairs and maintenance costs. You can deduct expenses related to maintaining or repairing your vehicle (such as tires or oil changes) as long as they don’t improve its appearance or performance beyond other cars in its class. This includes any labor charges related to those repairs or maintenance work.

To deduct actual expenses related to your car’s business use, it’s essential to keep track of all vehicle operating costs, including mileage, gas, oil changes, and repairs. You can save a detailed log of your business miles by using an app that tracks your mileage, or you can construct a mileage log using appointment bookings and the like.

Note that the cost of driving between home and work is not deductible and is considered personal commuting expenses.

Contract Labor

If you hire contract labor to perform services for your business, you may be able to deduct these costs as a business expense. Contractors include independent contractors who provide plumbing, landscaping, and accounting; they also include temporary employees who work full-time for a specific period. 

It’s important to note that the IRS has strict rules about what constitutes an employee versus an independent contractor, so speak with a tax professional if you have questions about this category.

The contract must be in writing and signed by both parties, and the labor must be performed at the direction of the person who signs the contract. A written agreement between you and your employee describes their services and duties as required to substantiate employee status.

Also, remember that if you pay a contractor more than $600 for work completed, you’re required by the IRS to send them a Form 1099-NEC the following year.

Education

Education costs are fully deductible when they add some value to your business. If you’re taking classes to improve your skills in your current business, then those education expenses may be tax-deductible. If they relate directly to your job, you can deduct the cost of tuition, books, and other required materials, such as travel expenses.

Education and job training programs can be deducted if they meet the following criteria:

• The education is designed to make you more valuable in the marketplace.
• Books tailored to your industry
• Workshops to increase your expertise and skills
• Transportation expenses to and from classes

You can deduct the cost of books and supplies required to take the course, but not any other expenses, such as travel expenses. 

Home Office Expenses

You can take a home office deduction if you use part of your home exclusively for business purposes. If that’s the case, you can deduct the amount of your rent or mortgage interest and property taxes and utilities and maintenance costs related to that area.

Some employers provide their employees with a workplace, but if yours doesn’t, then you can’t claim this deduction.

You have to meet specific criteria to qualify for this deduction, however. For example, you must use the space regularly and exclusively for business purposes, and it must be your principal place of business or an entire office used by employees.

Interest

If you use your own money to finance a business, like through a loan or credit card charges, this interest can be deducted from your taxes. The IRS allows interest paid on loans used for any business purpose, including supplies, equipment, or other operating expenses, to be deducted as an expense. 

If you use money from a loan or credit card to cover your business expenses, you can deduct the interest paid as long as you meet the following requirements:

• You are legally liable for the debt
• You and the lender have a genuine relationship

Legal and Professional Fees

If you have an attorney or accountant helping you with your taxes or other matters, these expenses are deductible against your gross income. Legal and professional fees are deductible when they’re related to your business. 

For example, you can deduct the cost of professional advice like tax planning, estate planning, and other legal services. If you’re a limited liability company (LLC) or corporation, you can also deduct the cost of accounting services required for your business.

You can’t deduct the cost of personal legal bills or expenses that aren’t related to your business. For example, if you get sued for negligence by a client in your profession as a carpenter, that lawsuit is personal and not deductible.

Moving Expenses

Moving expenses are a standard tax deduction for small businesses. If you moved to a new location for business reasons, the IRS might reimburse you for your moving expenses. Moving expenses include:

• The cost of packing and shipping your belongings.
• The cost of travel and lodging to your new location.
• The cost of connecting or disconnecting utilities at your old residence.
• The cost of renting a truck or other large vehicle needed to transport your belongings.

Keep track of all receipts and travel documentation for this deduction.

Rent Expense

If you rent a business location or equipment for your business, you can deduct the rental payments as a business expense. This includes rent, mortgage interest, and property taxes. 

You’ll need to show proof of the cost and how it relates to your business — for example, by keeping a log of time spent in the space each day and showing how much time was spent working.

Salaries and Benefits

Salaries are likely the most significant expense for your business, so it’s no surprise that they’re tax-deductible. The amount you pay your employees is deductible as long as you have a reasonable salary for the work performed.

The IRS allows businesses to deduct reasonable salaries for themselves and other employees. The company can also remove any benefits it provides its employees, such as health insurance and retirement contributions. 

These types of deductions are often overlooked by small business owners who focus on other aspects of their business, but they can add up fast and make a big difference when doing your taxes.

Telephone and Internet Expenses

If you use your phone or internet connection to conduct business, these expenses are tax-deductible. For example, if you have an office and use an internet connection to send emails to clients, this expense is deductible. You can also deduct costs associated with your smartphone if used for business purposes such as making or receiving calls or sending emails. 

However, if you use your cell phone primarily for business calls, then in most cases, you can also claim a deduction for that portion of the bill — be sure to track how much time is spent on business calls versus personal ones.

The same goes for a landline at home or elsewhere: You can deduct the cost as an ordinary and necessary expense for that part of the bill related to work-related calls.

Internet access is another area where it gets complicated quickly because there’s no blanket rule about what percentage of usage is considered work-related. If you have a cable or DSL line and use it mainly for personal browsing but also do business online from time to time, then you may qualify for this deduction if most of your usage is related to work activities.

Travel Expenses

A trip to qualify as business travel has to be necessary and away from your tax home. This means that you or your employees travel away from the entire city or area where you conduct business, regardless of where you live.

It would help if you traveled away from your tax home for more than a day to qualify for this tax-deductible. 

If you qualify, you can deduct all travel costs — airfare, taxis, train tickets, and car rentals — if they’re related to your business. You can even remove your meals while traveling and lodging expenses (including Airbnb) if you have to stay overnight on business.

Deductible, IRS approved business travel expenses also include:

• Travel costs to your destination and back
• Using your car while at a business location
• Any parking or toll fees
• Any other methods of transportation like taxis and Uber
• Any meals and lodging costs
• Other necessary expenses related to your business travel

You must keep records of all your expenses, details of your trips, and the business reasons for the journey.

Personal Tax Deductions for Business Owners

You’re not just paying taxes on your income as a business owner. You may also be able to deduct expenses related to your business from your tax return, as long as they are considered ordinary and necessary for your business to run.

The 16 tax deductions mentioned above can be claimed on Schedule C, but there are also other tax breaks that small business owners may qualify for and claim on their returns. 

Child and dependent care expenses

If you have dependents who require child care services, you may be able to deduct those costs as business expenses. The IRS allows this deduction if you pay for the care of children under the age of 13 or disabled dependents who can’t take care of themselves outside the home because they’re physically or mentally unable to do so.

You can also deduct these expenses if you have a spouse or other qualifying person who is physically or mentally unable to take care of themselves outside the home.

Depending on your income, the amount you can deduct is worth between 20% and 35% of your allowable expenses. Allowable expenses are limited to $4,000 for one dependent and $8,000 if you paid for the care of two or more dependents. 

Retirement Contributions

 If you’re a business owner, you may have the option to make contributions to a retirement plan. These contributions are tax-deductible, but they may not be deductible if your business is organized as a sole proprietorship or single-member LLC taxed as a sole proprietorship.

If your business is organized as an S corporation or partnership, these plans are usually deductible from your income taxes. If you’re self-employed, you may be able to deduct some of your retirement plan contributions. The money must be deposited into an IRA or a qualified retirement plan to qualify for this deduction.

Health Care Expenses

 If you’re a small business owner, you may be able to deduct some of the expenses related to your health care. You can remove the following healthcare expenses:

Health Insurance Premiums. You can deduct the health insurance premiums you pay for yourself, your spouse, and your dependents on your income tax return. It would help if you delivered the dividends yourself and not through an employer or other employee benefit plan to qualify as a deduction.

Out-of-Pocket Medical Expenses. Eligible expenses include prescription drugs, co-pays, and co-insurance fees for doctor’s visits, ambulance services, hospital stays, nursing home care, etc.

The Bottom Line – Saving Money

As a small business owner, you may be eligible for various tax deductions. Not all small business owners are familiar with miscellaneous tax deductions. If you’re starting or running a small business, it’s essential to understand the basics of these deductions and how they can benefit your business. You can keep some extra money in your pocket come tax season.