Business Tax Deduction Ideas for More Savings

Woohoo! It's that time again! It's Tax Time!

Ah, the annual dreaded tax prep and filing is in full swing. You're pulling your receipts together. You're looking over your statements. You are finding for those last minute deductions to reduce your tax basis just a little bit more. Every penny counts. 

Before you hit Submit with your favorite tax software or before you hand over your shoebox of receipts over to your accountant, let's review some common and not-so-common deductions. 

But first! I am not an accountant. This is not accounting advice. I never took an accounting class. I'm rehashing what others suggest and through my experience of including Schedule C in my 1040 for the past couple of decades. If in doubt, talk to your CPA.

The first rule of thumb on business deductions I heard came from a TurboTax video I watched years ago. They said that deductions are generally allowed if the expense was "ordinary and necessary" to the function of your business. Let's use a company car as an example. Is it ordinary and necessary to purchase a company car for your cleaning business? It may not be necessary to buy a new car but it necessary to have a car or transportation of some sort, so you can get to place to place. So if you buy a new work truck or van, or even a sedan, it's generally allowed. However, would it be ordinary and necessary to buy a new Ferrari to move your mop bucket and vacuum? Nope!

       Sigh...here's to wishing.

The following comes from IRS Publication 535. This is for 2022 tax year, but it's generally the same year over year. 

Non-exhaustive and potentially allowable deductions for your cleaning business (listed in order from your Schedule C, beginning with Part II):

Advertising (and marketing) examples:

Google AdWords
Brochures
Website
Business cards
Third-party marketing (e.g. Yelp, Thumbtack, Bark, etc.)
FB Ads, or other social media ads
Print ads
SEO services
Advertising in a directory
Car magnet
Signage

Car and Truck expense examples. Generally there are two allowable methods, and only one method can be chosen. One is a standard deduction. The other is an itemized deduction. Both require meticulous mileage records. See Publication 463 for more information.

Standard Deduction:

65.5 cents per mile (2023; it can change more than once per year), with no itemized deductions allowed. If you bought your car this tax year, you must use the standard rate that first tax year.

-OR- Itemized Deduction:

Each item can be deducted. A standard mileage rate cannot be used. Examples:

Depreciation
Gas
Oil
Gas
Car wash
Tires
Car supplies
Repairs
Parts
Non-tax portion of your car's registration

In addition to the above, you can write off parking and tolls. You can add it to either method.

Commissions and Fees examples:

Commissions paid to others as a referral fee
A commission paid on behalf of a consignment sale for equipment 

Note: If you pay more than $600 in the calendar year, you have to file a 1099-NEC on the one receiving the commission.

Contract Labor (aka subcontractors) examples:

Subcontract labor
Gig labor (e.g. Fiverr, UpWork, VAs)

Depreciation examples:

Depreciation on your car
Depreciation on equipment you lease out (exceptions apply)

Employee Benefits (does NOT apply to YOU or your subcontractors....this is for employees only) examples:

Health Insurance
Group Term Life Insurance
Dependent Care Assistance
Accidental Insurance

Interest Expense examples (limits apply):

Interest on a mortgage on a business property (not home - claimed elsewhere)
Interest on a loan or line of credit used exclusively for business
Interest on a credit card exclusively used for business

Legal and Professional Services examples:

Accounting fees
Legal fees
Consulting fees

Office Expenses examples (larger purchases, like a computer, are entered elsewhere):

Office Supplies (e.g. paper, pens, printer toner, light electronics purchases, etc.)
Software and other SaaS (e.g. Quickbooks, Google Suite, Jobber, etc.)
Postage and delivery

Rent or Lease examples:

Rent on an office space (other than your home, claimed elsewhere)
Leased equipment for your office, like a copier or furniture
Rented storage unit
Note: leased cleaning equipment goes elsewhere

Repairs and Maintenance examples:

Vacuum or other floor machine repairs
Computer repairs
Cell phone screen repair (if phone used for biz)
Rented office repairs, like plumbing, electrical, painting, etc.

Supplies examples (supplies, like cleaners, are entered elsewhere. This line item is for raw materials not directly used in the production of your business):

Baskets, bows/ribbons, paint brushes, etc. used for making client gift baskets
Printing used to offset formal presentation materials

Taxes and Licenses examples:

Business license fees
Business registration fees
Local or state property taxes on your business property (car is captured in auto expenses; property tax on home is captured elsewhere)
Copyrights
Non-IRS business taxes
Sales taxes
State income taxes
FICA/FUTA/SUTA and/or other local labor taxes

 Travel examples:

Flights to and from conferences/business events
Car rental or other ground transportation to and from events
Hotels while traveling

Meals examples (allowable up to 50%; other rules apply):

Meals while traveling for business
Meals while conducting local business (must be documented with names in attendance and purpose)

Utilities examples:

Power/Gas/Phone/Cable provided directly into a leased or owned office aside from your home.
Cell phone service used in business

Wages (this is not your workers who are cleaning or managing your office or doing sales. Those are entered elsewhere):

Applicable for WOTC credits, Empowerment Zone credits, etc. 

Other Expenses examples (broad range, but it's basically anything not included this far, except for anything within Cost of Goods Sold. You can be a little liberal in describing these categories. Each must be listed inside Schedule C towards the end of the form):

Professional Development (e.g. books, coaching, courses, masterminds, etc.)
Bank fees
Moving equipment
Penalties paid for a non-performance of a contract
Bad debts (money you lost due to non-paying clients)
Credit card processing fees
Any other allowable expense not listed elsewhere

Business Use of Home - allowed using a square footage method in comparing a dedicated office only to your business (must have a door or at least a curtain to seal off) to the rest of your home. Can include other expenses like gas, electric, phone, internet, landscaping, maid service, etc. if shared with your home.

On Schedule C, there's a Part III for COGS. Below is a list of those line items.

Supplies (less remaining inventory)
Equipment
Gross Labor (excludes you and spouse, if filing jointly. Taxes captured above)
Storage (if not captured in Part II)

I hope this helps jog your memory come tax time. Every deduction counts. And if not clear already, I am not an accountant nor can I use a calculator like one. We all know 2 + 2 = 5, but we don't all know how Sect. 1531 54(a)(i) applies to us vs. Form 6234 when we check box 7 on Form 1052 (ok, made all of that up). Sharpen those pencils and good luck (and I hope you avoided the underpayment penalty this year).