5 Small Business Tax Deduction Tips

By Pedro Hernandez | Posted December 17, 2015

The end of the year is fast approaching, and apart from blockbuster sales this quarter, another way that small businesses owners can improve the bottom line is to reduce their tax burden.

With the proper deductions, small business owners can turn a good profit into a great one. The less money they pay out in taxes, the more they have to reinvest in their companies. It's one of the top factors that motivate entrepreneurs to buy accounting software, according to Brian Sutter, director of marketing for Wasp Barcode Technologies, an asset- and inventory-tracking specialist.

"The number one thing they use accounting software for is tax preparation and tax-burden reduction," Sutter told Small Business Computing. After surveying business owners for Wasp's State of Small Business and Small Business – Accountingreports, Sutter has become somewhat of a tax expert. In the latest report, 37 percent of small business leaders said they paid too much in taxes.

That's a lot of unhappy folks when it comes time to pay Uncle Sam. Fortunately, some tax write-offs can turn into big savings. Sutter offers the following tips to help you make the most out of your small business tax deductions.

small business tax deductions

5 Money-saving Tax Tips for Small Business Owners

1. Save Your Receipts

It might be patently obvious, but you can't deduct expenses you don't remember incurring. And it's truly surprising how many people neglect to save receipts.

"Maintain excellent records," advised Sutter. Whether its business travel or dinners with prospective clients, make sure you get a receipt and tuck it away somewhere safe so that you can tally them up later. Better yet, Sutter urges small business owners to "leverage technology" to manage receipts more efficiently from the start.

There's a wealth of "low-end software that helps with expense tracking," Sutter said. "It's painless; scan in the receipt, and you're done."

2. Bonuses Count, Too

Many small business owners incorrectly assume that holiday bonuses are an extra perk outside of normal payroll operations, and they often misclassify bonuses in terms of tax purposes.

"You can actually write off year-end bonuses," Sutter revealed. "It goes into the labor category, which reduces your income." Though employers will pay normal state taxes as they apply to compensation, it counts as a deduction on federal taxes, he added.

3. Consider Awarding Company Stock

This tax strategy takes a bit of planning. "It's not something that you set up in a week," but one way to reduce your tax burden without paying a dime is to issue year-end bonuses as stock, said Sutter.

Business owners can deduct the value of that stock "if they're willing to give up ownership in their company," he said. As a bonus, awarding stock can help with employee retention, he said.

4. Upgrade Your Technology

This is a great time of year to buy those big-ticket technology items. "You can deduct any technology purchases you make by December 31st for the full-dollar value" this year, Sutter noted.

If you're looking to save big on this year's taxes, now is the time to replace old computers, servers, and office equipment. "It's an easy decision; you can pull the trigger quickly," he said. "The deduction also applies for used equipment."

5. Don’t Forget Software Subscriptions and Office Supplies

Some businesses owners forget that they can deduct their software subscriptions— even if they're billed monthly. Just total up what you spent for the year on Salesforce, security software, or any other business software plan and deduct it. "A lot of people don't know about that deduction," said Sutter.

You can also deduct office supplies—like printer paper and pens; even the packaging you use for shipping counts.

It's easy to overlook the quick trip to the neighborhood office supply store for a ream of paper or a box of envelopes, but Sutter suggests keeping a close eye on those purchases. When they occur repeatedly, even relatively paltry amounts can have a big impact. When it comes to office supplies, businesses often "miss the small ones that add up to thousands of dollars along the way."

Pedro Hernandez is a contributing editor at Small Business Computing. Follow him on Twitter @ecoINSITE.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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