Tax time can be tiring for any individual taxpayer. However, for small business owners trying to cut costs at every turn, the task can be downright overwhelming.
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According to the IRS, business expenses must be both “ordinary and necessary” to be deductible, but those definitions vary depending on an individual’s understanding of tax rules and the strength of their moral compass when it comes to filing taxes.
Aside from figuring out how much of your larger business expenses — inventory, salaries, rent, equipment, utilities — can be deducted, there are some common yet surprising items that can reduce the amount of income subject to federal and state taxation.
The agency provides an exhaustive amount of qualifying information about small business tax deductions that allow you to decrease your taxable income. Here are five unexpected tax deductions every small business owner should keep in mind before filing.
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1. Gym Memberships
Generally, gym memberships are not tax deductible. However, there are instances where you would be able to claim a gym membership on your tax return. Certainly, if your small business is fitness-related or you are required to be in good shape (e.g., personal trainers), this may qualify you to deduct the cost of a gym membership or equipment on your taxes, per Keeper Tax Inc.
You may also be able to list your gym membership as a medical expense, but this would be considered as a personal itemized expense. If you have a medical diagnosis for something like obesity or hypertension and have been prescribed weight loss activities or support groups run through a gym, courses or a membership might be considered tax-legal.
2. Home Renovations
If your house is your principal place of business or you use a regular, exclusive space in your house for conducting business, home improvements qualify for tax deductions. Although you can’t claim a deduction on a working space or office at home if you also work at an employer office, home office remodels or improvements are deductible if they are only in the parts of your home used for business.
Even improvements that benefit your home in general (e.g., getting the heating system repaired) are partially deductible. Keep in mind that the IRS follows strict guidelines as to what constitutes a home office, so make sure to abide by those. A laptop on your kitchen table is not considered an office, so don’t expect your new showroom kitchen and entertaining space to be green flagged when you try to include it among your small business tax return deductions.
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3. North American Travel
Business-related travel is very common. If you have to travel for any business-related reason such as meeting with a client or attending a conference, you can deduct 100% of your expenses.
But what if that conference is aboard a cruise ship in the Bahamas or your client lives in Costa Rica?
As Business News Daily noted, most travel outside North America is non-deductible unless rationalized as “ordinary and necessary. ” However, reasons are not required for the plane, train or bus tickets, accommodation, and parking, tolls and fares associated with business conducted within North America. Of course, as with deduction, documentation and rationale might be required for anything that is deemed to be out-of-the-ordinary. The IRS will consider your business trip a vacation if no business is revealed to have taken place.
4. Pets at Work
Of course, if you have a service or emotional support animal or guide dog, you can deduct the cost of buying, training and maintaining them as medical expenses. But you may be able to get a tax deduction if you have working animals that are necessary to the operation of your business, too.
However, as Business News Daily reported, you have to be careful to prove and document what purpose or service your pet provides to the business. For example, if you are Pete from “Pete’s Performing Parrots,” you shouldn’t have a problem claiming certain deductions on your taxes. However, for less obvious examples, all commercial, advertising and operating expenses you claim have to be related to your pet on the job.
“This only applies to certain animals in certain situations, though,” said Joshua Zimmelman, president of Westwood Tax & Consulting. “For example, you can say that a Rottweiler is a watchdog, but don’t try that with a hamster, or you will probably raise a red flag at the IRS.”
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5. Landscaping Improvements
Unlike office space in your house, it is more difficult to substantiate deducting the cost of maintaining the outside of your house through improvements. However, if you regularly meet with clients at your house, you can deduct part of your landscaping expenses if you prove that they are directly tied to your business.
As Forbes noted, in the case of Langer v. Commissioner, driveway repairs and upkeep to the lawn space were deemed to be partially deductible by the Tax Court after the petitioners claimed substantial expenses with respect to the business conducted at the residence, related to the depreciation of the home, lighting, driveway and landscaping.
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