- Hi everyone.
I'm Attorney Aiden Durham with 180 Law Co in Colorado.
Welcome back to All Up In Your Business
where today we're gonna talk about some commonly overlooked
but very important tax deductions
that you're gonna wanna make sure
you take full advantage of.
Before we get into all that fun stuff
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And while I am a lawyer, I'm not your lawyer,
the stuff I talk about in this video and all of my videos
isn't a substitute for actual legal advice.
If you need help with any legal matter or tax matter,
you should consult with an attorney
who's licensed in your state.
So like many of us, you might be in the process
of doing your taxes right now,
or maybe getting all of your paperwork and stuff together
to hopefully have somebody else do your taxes for you.
And as a business owner,
you're gonna wanna make sure you take full advantage
of all of the tax deductions and credits
that are available to you
so you can minimize your tax payment
and how much you owe as much as possible.
Before I get into the different tax deductions
that you're gonna wanna make sure you're aware of,
let's quickly talk about how deductions
and credits affect your taxes.
Most of you, I believe are operating
either as a sole proprietor, maybe an LLC,
or perhaps an LLC taxed as an S-corporation.
If you're operating as an LLC or an LLC tax as an S-corp,
that means your business and the way you file taxes
is as a pass through entity.
And that means the taxes basically pass through
onto your personal tax returns.
Only C-corporations pay their own corporate tax
but these pass through entities there is no corporate tax
because it all passes through
to the individual business owner or owners.
And so of course, with your business,
you have to pay taxes on the profit,
but not on the total profit necessarily.
You're only gonna be paying taxes on the total
after you've subtracted certain deductions from your profit.
And so of course, the more deductions you can take
the lower your tax payment is going to be.
That's why it's super important that you track your expenses
and claim properly any deductions that you can.
Now, tax deductions aren't the same as tax credits.
Tax deductions simply put,
they lower your profit or your taxable income,
so it lowers the amount of income
that you have to pay taxes on,
whereas credits affect the actual tax payment that you make.
It's a dollar for dollar credit against the taxes
that you might owe.
So as a very simple example,
let's say my business has a profit of a $100,000
and I have tax deductions of 10,000.
That's going to reduce the amount
that I have to pay taxes on from a 100,000 to $90,000,
versus a credit, again, let's say I have a $100,000
in income and my taxes, I don't know, are gonna be $25,000,
but I have $10,000 worth of credits.
Therefore my tax payment is gonna go from 25,000
down to 15,000.
I'm completely making these numbers up.
They're not in any way based on like actual tax rates
or anything,
it's just a way to explain and demonstrate how credits
versus deductions work, okay?
All right, now let's get into some of these deductions
that you're gonna wanna make sure you're aware of
so you can limit and reduce the amount of taxes
that you have to pay.
First, we've got startup costs.
These are costs that you put in to start your business.
Generally speaking, they're like any other costs
that you might take as a business deduction
except they occur before your business has actually started.
And this is gonna include a lot of the money
that you've spent in preparing and launching your business.
This could be things like professional service fees.
So if you paid an attorney to help you start your business
or to maybe do a a trademark research,
or a trademark application,
those are gonna be deductible startup costs.
Advertising and marketing costs as well.
And maybe like travel costs
if you had to take a trip to meet
with like suppliers or distributors or potential customers.
Now you can't really take all of your startup costs
as a deduction in every situation,
there are limits and rules
to how much of a deduction you can take
and things like that.
So of course, with all of this, really you want to consult
with a tax professional or just have a tax pro
handle it for you
so you're taking as much as you actually can.
Next, we've got the good old home office deductions.
If you're operating your business out of your home,
you can take a portion of your home expenses
as a business deduction.
This is usually the the proportion of your home
that is used and dedicated for business.
So if 10% of your home is your home office
then you can take 10% of your home expenses as of deduction.
These are usually going to be things like utilities,
your rent or mortgage interests,
and then often costs for maintenance or repairs
to your home as well.
There are two ways to go about this.
Again, you can take the percentage
of those expenses as a deduction.
So if my total home expenses are again,
let's say $5,000 and my home office is 10%,
then I can take 10% of that $5,000 as a deduction.
But the IRS also has a standard home office deduction
if you don't wanna have to like do all of the math,
and currently that standard deduction
is $5 per square foot up to 300 square feet.
So $5 per square foot of your home office, up to 300.
You also wanna make sure you're taking full advantage
of the mileage deduction
if you do a lot of driving for your business.
If you're gonna be deducting your mileage,
it's important that you are keeping good track
and records of the miles that you drive for business.
So like in the beginning of the year
make a note either on your phone maybe,
or an actual like pad paper that you keep in the car
or use a mileage tracking app or software.
Make a note of your starting mileage
in the beginning of the year and then track and make note
of how many miles you drive to and from each meeting
or all the business things that you're driving to.
And then at the end of the year
make note of what you're ending mileage is too.
The easiest way though
is really to use an app like MileIQ.
That's the one I don't really drive for business anymore
because I'm completely virtual and I work from home.
I haven't taken a mileage deduction in about three years,
but when I used to I used MileIQ and it,
ugh, made it so much easier.
The current mileage deduction rate
for 2022 is 58.50 cents per mile.
And again, just like with the home office deductions
you can take the actual deductions of your mileage
or you can take a kind of standard deduction
of your actual expenses for your vehicle.
The mileage deduction, like the 58.50 cents per mile
is usually the easiest way to do it though.
As a small business owner,
some of your medical expenses can be tax deductions as well.
Things like health insurance premiums
for yourself and your family,
medical expenses if they exceed 7.5%
of your taxable income,
and sometimes even things like exercise equipment
or gym memberships but that's not always the case.
So again, check with the tax pro
before you go taking those deductions.
Education expense deductions are a big one as well.
If you spend money on anything that maintains
or improves the skills that you need to do your job
and to operate this business,
those expenses are usually going to be a good tax deduction.
This can be things like continuing education courses,
maybe online trainings or online courses.
Again, really anything that helps you maintain
or improve the skills you need for your job.
I've been talking about business insurance a lot lately,
and in that spirit, business insurance costs
are another great tax deduction.
So things like general liability insurance, cyber coverage,
malpractice, or errors or omissions coverage,
any insurance that you use and need for your business,
those are gonna be deductible business expenses as well.
Meals and entertainment
can also be deductible business expenses too,
not always, but only in some specific instances.
Like if you are going out with a client
or a potential client to lunch trying to woo them,
trying to get their business,
you can take a deduction for those meal expenses.
Now big thing with this,
you can only only take a deduction for 50%
of those expenses.
So not the entire amount, 50% is what we're able to do.
If you have employees, their salaries or their pay
is a deductible expense too.
This usually includes bonuses and it can also include gifts
to your employees up to $25 per year.
And then finally, one of my favorites
because I think we all have these expenses
and should really be taking full advantage
of these deductions, office supplies and software.
So pens, paper, printer, ink, laptops, computers,
printers, depending on the actual thing,
sometimes you don't get to take a full deduction for it
in the current year,
but generally speaking, these supplies and software as well.
So maybe, Zoom is still a big thing.
Microsoft Office expenses, if you're paying for Word,
any kind of software or program
that you're using for your business
those are gonna be deductible expenses as well.
So of course the last thing really we want to do
is get in trouble with the IRS.
If we maybe don't take a deduction properly,
or if we don't properly document that deduction
and the IRS comes and knock in,
and does an audit and says,
"Hey, uh, uh, you shouldn't have done this,"
or, "You did this wrong," that can really be a bad thing.
So of course it is best to work with a tax professional,
a CPA, a tax accountant
when you're doing and preparing your taxes
to make sure you're doing everything properly.
And in case it was an obvious,
this was not an exhaustive list of all the deductions
and credits that are available to you as a business owner.
Just a few of the more common and important ones
that most of us are gonna be able to take.
If you learned a thing or two,
please, I would love it if you gimme a thumbs up,
make sure you subscribe If you haven't already.
Click the little bell so you get notified
when I post a new video.
If you're maybe wondering here yourself,
"Okay, now I know what deductions I take,
but like how do I actually take these deductions?
What kinds of forms do I have to use to do this?"
You're in luck, my friend,
because I just posted a video about the tax forms
that you'll likely need to use as a single member LLC
or a pass through entity.
You can check it out right here.
I'll meet you over there.
Thank you so much for watching.
I'm Aiden, Durham and I'll see you next time.