- Hi everyone.
I'm attorney Aiden Durham
with 180 Law Co. in Denver, Colorado
and you're watching "All Up in Yo' Business."
(pleasant music)
On this episode of "All Up in Yo' Business"
we're gonna talk about tax deductions
that your small business
definitely doesn't wanna miss in 2020.
And when I talk about in 2020,
I'm talking about filing taxes in 2020 for 2019.
First, I'm gonna give you some deductions
that you wanna take advantage of this year
but then I'm gonna talk about a few deductions
that you can use in planning for next year
and how to minimize your taxes for next year.
But before we get into it,
please be sure to like, subscribe, and share,
s'il vous plait.
And check the description
for some additional information
and I've got some freebie downloads
and check sheets and stuff there too.
All right, taxes.
First, a little bit of background information.
You can kind of but not technically
deduct pretty much all costs
associated with running your business.
Now, obviously there are rules and exclusions
to all of this and exactly how it works,
but ultimately you're able to recover
in one way or another
the costs that you spend in your business.
Now, technically speaking,
some costs can be deducted
but some which are considered capital expenses
have to be capitalized rather than deducted.
Which just means they have to be
amortized or depreciated.
Amortized means you deduct it
over the series of a few years.
So instead of taking a $10,000 deduction,
you take a $2,000 deduction over five years,
amortizing that deduction.
And then depreciation is kind of the opposite.
You get to deduct the loss in that asset
over the period of a certain amount of years.
So I'll be using the term
deduct or deduction throughout this video.
But sometimes in some circumstances
it's not actually a deduction.
It's a capital expense
which needs to be capitalized.
So what can be deducted from your business?
The kind of general rule,
the general rule of thumb,
is that you can deduct anything
that is ordinary and necessary for your business.
Now, if something is ordinary,
the IRS says that that means
it's common and accepted in your industry.
And if it's necessary
the IRS says that that's
helpful and appropriate.
So for the most part,
if something is ordinary and necessary
you can deduct the cost from your business.
For this year,
for preparing your taxes for 2019,
here are some really important tax deductions
that you do not wanna miss.
First off, you can deduct the costs
of going into business.
The IRS allows you to deduct your startup costs
and your organizational costs.
So startup costs are things like buying supplies,
market research, advertising,
travel that's needed,
any ordinary and necessary expenses
that are incurred
once you're in the process
of starting your business.
And then organizational costs
are gonna be like filing fees
and professional fees
like legal and accounting costs.
You can even deduct your startup costs
if your business is unsuccessful.
So even if you tried to start a business
and it didn't work out,
you didn't make any income from it,
you can still take a deduction
for the cost that you put into
trying to start that business, usually.
There are a couple of rules.
So the IRS says if you incurred those costs
prior to making a decision
to go into business
or to start a business,
then those are personal expenses
and you can't deduct them.
But any costs in your attempt to go into business,
once you made that decision
to pursue going into business,
all of those costs are capital expenses
and can be amortized.
So this is one of those situations
where it's not a deduction exactly.
It's a capital expense.
But the IRS does allow you to deduct
$5,000 of startup and organizational costs each.
So 5,000 each.
So if you spent more than that
in your organizational and startup costs,
then that's a situation where you'd want
to amortize those expenses over a few years
to take full advantage of those deductions.
Next, you can deduct the cost
of your supplies and materials
and just kind of general overhead
and operating expenses.
So this will be your office supplies
and incidental materials,
just random things you need in your office
to operate your business.
It also includes like services and subscriptions,
apps that you need for your business.
So if you download some app
that you have to use every day
or if you use some subscription services
to operate your business,
those are all deductible.
Next you can deduct your costs
for employees and contractors.
Payroll expenses are fully deductible
as are any kind of contractor expenses.
So if you have anyone on your team
who's helping you out, supporting your business,
those costs are deductible too.
Equipment, computers,
any kind of machines,
printers, scanners,
those expenses are all deductible.
Many instances they have to be depreciated
depending on the type of equipment
or the type of thing it is.
But, one way or another,
those expenses can be recovered.
Of course you can deduct the cost of your rent
if you rent an office
or if you even rent a PO box,
or if you have a virtual office
that you use for your mailing address,
those costs are fully deductible too.
Utilities and other services like that.
Those are all deductible.
This applies if you have an office outside of your home,
if you pay water or electricity
or any other utilities,
your internet bill,
your phone bill for that office,
those are all gonna be deductible business expenses.
If you're making any
retirement plan contributions
as a solo business owner,
if you have a SEP IRA or a simple IRA,
or if it's just you,
you have no employees or anything,
and you have a solo 401k,
you can make tax deductible contributions
to your retirement account.
And the nice thing with deducting
these retirement contributions,
is you can make a deduction
up to the day that you file your taxes.
So you don't have a deduction
just for the contributions
you made in the previous year.
You can take for that year
a deduction for any contribution
that you made up to the date of your filing.
One of my favorites deductible expenses
is travel expenses.
If you travel for work,
if you travel for conferences
or meetings or to sites
or to work with clients,
those travel costs and travel expenses
are gonna be deductible.
This applies even if you use
some personal time for that travel,
which is what I love to do.
If I have to go to a new city
or go somewhere new for a work event,
I try to tack on a day or two to that trip
so I can have some personal time
and travel and sight-see
and have some fun for myself.
Now, if you do that,
unfortunately, you can't deduct
the full cost of the trip
if some of it is personal.
But so basically you just deduct
the portion of the trip
that was work related.
So if you're gone for 10 days
and five of those days
you spent in a conference,
five of the days you spent doing personal stuff,
then 50% of your travel costs
and travel expenses can be deducted.
That includes your travel meals.
Now meals, there is a limit to what we can deduct,
whether it's a meal for traveling
or a meal if you're taking a colleague
or a client out to lunch.
Any of those kinds of marketing
or entertainment meals,
those can be deducted up to 50%
of the cost of that meal.
So you can't fully deduct the entire thing.
But 50% of those expenses
are deductible too.
Insurance costs are deductible as well.
So your liability insurance,
if you have errors and omissions insurance,
product liability insurance,
even your health insurance premiums
can be a business deduction.
Mileage is a big deduction
that a lot of people can easily miss.
The mileage reimbursement rate for 2019
is 58 cents per mile.
So that means for any business related mileage,
you can take a deduction for 58 cents per mile.
Now, if you do this,
you wanna be really careful
that you're tracking your mileage properly
because you can't take a deduction
for all of your miles.
It's only the ones that are business related.
So driving from your office to a meeting
or driving between meeting locations
or driving from your office to a client's location,
all of that's business mileage.
Now you can't usually deduct the cost of mileage
between your home and your office,
but there is a little trick to getting around that
and that is with a home office.
So if you do have a home based office,
if you work in your home,
or if you work in your home
and you have an outside office,
but you do a lot of work in your home,
you may be able to qualify
for a home based office
and take home office tax deductions.
Now, the deductions that you can take
for an office in the home
are really the same as the deductions
that you can take if you have an outside traditional office.
It's just gonna be not necessarily all of the expenses.
So with your home office
you can take a proportion
or a percentage of those costs
depending on how much of the total home
your office takes up.
So for simplicity's sake, let's say your home,
the total square footage
is 1,000 square feet and your office
takes up 100 square feet of that total footage.
That means 10% of your home expenses
can be deducted as business expenses.
So that includes your mortgage interest
or your rent on your home,
your home insurance,
your home utilities, electricity, internet costs.
It can also apply to your cell phone bill.
Even if you don't have a home office,
if you use your cell phone
for 50% of the time it's business,
then 50% of your cell phone bill
is a business expense.
But going back with the home office thing and mileage,
if you have an office in your home
and an outside office
then now because your home is an office location,
that mileage between your home office
and your other office
can be deductible business mileage
because it's now driving between offices
rather than driving from your home to your office.
Advertising costs, of course,
are a deductible business expense.
Whether it's Google ads
or advertising for a billboard
or to put a commercial on TV.
Your advertising costs are gonna be deductible too.
Any expenses to attend conferences or meetings.
So of course your travel costs are included
but the ticket price to attend that,
if you had to pay something for it,
that's gonna be deductible as well.
Credit card processing fees, thankfully.
If you accept payment over credit card
we have a lot of fees that we
have to pay to take those credit card payments.
Those fees that we pay
are gonna be deductible
at least a little bit to help offset
how that affects our actual income.
Educational costs can be deductible too.
Not in all circumstances.
You can't just go back to school
to get your bachelor's degree
and have your business pay for it.
But you are allowed to deduct your educational cost
if the education is to maintain
or improve your current work skills
or if you're required to complete that education.
So if you're in an industry
like the legal profession
or accounting profession
where you have continuing education requirements,
those costs for attending those courses
are gonna be deductible.
Your tax prep services.
Those costs are deductible too.
So isn't that funny?
The cost that we put into preparing our taxes
to figure out the deductions,
that money that we put in
to figure out what we can deduct,
that money is deductible itself.
Isn't that funny? (laughs)
And then finally,
any kind of licensing or regulatory fees.
So again if you're in an industry
like the legal profession
or if you're a cosmetologist
or something where you're licensed
or governed by some licensing board,
then those fees and any renewals,
those are all gonna be deductible for your business.
So those are some costs
that you can take advantage of this year
when you're filing your taxes for last year.
But looking forward, let's say maybe 2019,
if your taxes were a little bit higher than your liking,
there are things that we can do this year
to plan for next year
and hopefully try to minimize our taxes for next year.
The first one is start tracking your mileage now.
If you haven't already,
if you're not already taking advantage
of that mileage deduction,
start tracking it now.
My favorite thing to do,
there's an app called MileIQ.
There's a free version or a paid version.
It's fantastic.
I've used it for five years, if not more.
You just download the app,
put in your starting mileage,
and then it automatically tracks you.
When it senses that you're moving in a car,
it tracks your mileage,
and then you can categorize it
as personal or business related
and then it automatically calculates
the deduction or the reimbursement rate for those miles.
So if you're not doing it already, start that now
so you can deduct your mileage next year.
Another way to plan for next year's taxes
is start contributing to an HSA
or a health savings account.
If you're on a high deductible health care plan
you can contribute money to your HSA
and those contributions will be tax deductible.
If you know that you have regular medical costs,
if you have a regular prescription
that you get every week
or every month,
you can factor that into your costs for the year
and plan out how much
you should put into your HSA for next year.
And if you're starting to get really busy
and maybe you're starting to make a lot of money,
hire someone, hire some help.
That's gonna take some weight off of you
and it's gonna give you an expense
that you can deduct from your income next year.
You can also potentially limit your taxes
by making an S-Corp election.
Now is a good time to talk
with your CPA or your tax advisor
to determine if making an S-Corp tax election
will help you save for next year.
And then if you're a big time baller
and you're getting into a higher tax bracket,
if you're starting to make a lot more money
and you're going into that higher tax bracket,
talk with your tax planner
about what you can increase,
what expenses you can increase,
or what contributions you can make more of
to lower your income
so you're in a lower tax bracket.
That's all for this episode, folks.
Drop a comment below
and let me know what you think.
Also be sure to check out my blog
for some more information
and to learn more about small business tax deductions.
Thank you all so much for watching.
I'm Aiden Durham
and I'll see you next time.
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