Top 10 Small Business Tax Savings You May Be Missing

March 11, 2015


Tax Savings for U.S. Residents:

As the tax deadline approaches it’s time to start thinking about how to minimize that tax bill, or even better—maximize that refund.
Take a look at this list of Top 10 Tax Savings You Have Missed to squeeze a little more out of your return.

Savings #1 – Initial start-up costs

If 2014 was your first year of operation, and if you made your first sale during that period, you can deduct some or all of your business’s start-up costs. As long as your total start-up costs were less than $50,000, you can deduct $5,000 in general costs (things like buying equipment or renting space), as well as another $5,000 in organizational costs (legal fees, professional consultations, etc.).
Savings #2 – Insurance Premiums

Insurance can help give business owners valuable peace of mind since, let’s face it, accidents happen. Luckily you can claim most insurance premiums on your taxes to help make coverage a little bit more affordable. Not all premiums are deductible but most common ones are, such as liability, malpractice or fire insurance.

Savings #3 – Home office

Plenty of freelancers and small business owners believe taking the home office deduction puts you at higher risk of an audit, but that’s not necessarily true. Even if this were the case, the financial impact of taking this deduction correctly would be worth the risk (assuming you have documentation to back up all your claims).

If you do decide to claim your home office as a deduction, be sure to follow IRS guidelines in regards to calculating the space that qualifies. Then, be sure to account for any overall utility costs that contribute to running your space.

Savings #4 – Credit card processing fees

While many consider them an unretrievable cost of doing business, credit card processing fees are still a business expense. Meaning they’re deductible on your small business taxes! Your processor should provide you with a record of the fees you incurred throughout 2014 (if not, call and ask for these records to be provided). So, deduct those numbers from your taxes and make up for any lost revenue.

Savings #5 – Continuing education

Continuing education should be a major priority for all small business owners and self-employed workers (and the IRS wants to help you make it so). If you’ve attended any seminars, training courses or conferences throughout the year, the bulk of your costs will likely be deductible (but keep in mind that deductions for dining costs associated with conference trips are limited to 50% of the total bill).

Savings #6 – Business gifts

Business owners encounter a number of different occasions where giving gifts to clients is perfectly appropriate. Ever sent a fruit basket to celebrate closing a big deal? Or printed up jackets to give away to top customers? Add these items to your deductions list, gifts made to customers and employees up to $25 in value are 100% deductible on your taxes (nice).
Savings #7 – Health savings accounts

If you have a high-deductible health plan or offer this type of insurance to your employees, it’s worth your time to determine whether or not you’re eligible to tie a health savings account (HSA) to your plan. If you are, setting up this type of account will let you put money away for future medical expenses, in addition to letting your contributions grow (tax-free!!) over time.

Savings #8 – Child labor

We’re not recommending sweatshop labor or inappropriate work practices, but if you have a dependant child who handles work tasks for your business, you can employ them without paying the all of the same payroll taxes you’d pay for an older worker—and potentially claim part of their salary as an expense on your tax return.

This break is only available, however, if your business is structured as a sole proprietorship or as a partnership between you and your spouse. If you’re set up as a corporation, you will not be able to claim this deduction.

Savings #9 – Pet supplies

It’s not crazy talk. If you operate a farm and keep a guard dog on premises for the protection of livestock/crops, you may be able to deduct the costs of its care, including dog food, bedding and veterinary care, as a legitimate expense. Note though that deducting pet supplies requires a verifiable business purpose. ‘ol Fido warming your feet while you work on the computer won’t cut it with the IRS.

Savings #10 – Your FreshBooks subscription

FreshBooks isn’t just a great tool for getting a hold of your business’s finances—it’s also a valuable tax deduction. Most tax advisors agree that software-as-a-service (SaaS) products should be included in the “Other expenses” category of your tax reports, as they don’t involve a purchase that loses value over time.

In Canada? These tips are for you:

Savings #1 – Organization memberships

Your small business licensing fees are deductible, but what about the fees you pay to maintain your membership in a professional organization? You can absolutely deduct those as well! If you’re part of an association, academy, chamber of commerce or other group that helps you promote your business or improve your skills, you’ll want to include their fees as an expense on your tax returns.
Savings #2 – Business meals and beverages

If you take a potential client out for dinner, know that you can deduct all or part of this cost on your tax returns. In most cases, you can deduct 50% of your total meal, beverage and entertainment costs. Keep in mind that the CRA expects the costs to be “reasonable”, so steak dinner with clients five nights a week might be out of the question.

Savings #3 – Conference and conventions travel

Attending conferences and conventions that are directly applicable to your business represent another major tax deduction for Canadian entrepreneurs and small business owners. You can claim this deduction twice a year, and you can use it to help cover the cost of your registration fees, lodging, on-site transportation (including taxis and/or bus fare) and meal costs. If meals are not included in your event’s registration fee, they’ll be subject to the same 50% deduction rate that applies to all meal and beverage business tax deductions.
Savings #4 – Interest paid on business debt

If you’ve built your company by leveraging credit cards and loan debt, you can’t deduct the payments you owe to these financiers, but you can usually deduct any interest you pay them in service of the amount you’ve been lent. Your business credit card and loan providers should offer you a year-end report showing how much you’ve paid in interest; if not, you may need to do your own digging.

Savings #5 – Home office

Do you work from home instead of an office or co-working space? Then you probably qualify for a business-use-of-home expense deduction. Best of all, this deduction doesn’t just cover the portion of your rent or mortgage payments that accounts for your physical office space. You may even be able to cover everything from the interest on your mortgage to a portion of your cleaning supplies. Even if you rent your home, you can still claim a portion of the rent, utilities, insurance and home maintenance costs according to the percentage of your home used solely as office space.

One caveat here, though, is that you can’t use the home office deduction if doing so would move you from a profit for the year to a loss for the year. You must also use your home as your primary place of business to claim the deduction. Once these criteria are met, and once you’ve determined the number of square metres in your home that qualify, you can claim this deduction every year you’re eligible.

Savings #6 – Credit card processing fees

While many consider them an unretrievable cost of doing business, credit card processing fees are still a business expense. Meaning they’re deductible on your small business taxes! Your processor should provide you with a record of the fees you incurred throughout 2014 (if not, call and ask for these records to be provided). So, deduct those numbers from your taxes and make up for any lost revenue.

Savings #7 – Apprentices

Did you take on an apprentice in 2014? If so, the CRA may reward you with an Investment Tax Credit called The Apprenticeship Job Creation Tax Credit (of up to $2,000). You can take advantage of this deduction as a sole proprietor, though the worker you hire needs to qualify as a skilled tradesperson and must be in the first two years of his or her apprenticeship. Even better than a deduction, this type of credit is returned directly to you (rather than affecting your taxes through decreasing your business’s income).
Savings #8 – Private Health Services Plan (PHSP) premiums

If you’re self-employed and cover yourself (or any member of your household) with a PHSP plan, you may be able to deduct these costs from your income taxes. To take advantage of this expense, you’ll need to meet the following criteria:

  • Your net income from self-employment (excluding losses and PHSP deductions) for the current or previous year is more than 50% of your total income
  • Your income from sources other than self-employment is $10,000 or less for the current/ previous year
  • You are actively engaged in your business on a regular and continuous basis, individually or as a partner.

Deduction #9 – Child/youth labor

We’re not recommending sweatshop labor or inappropriate work practices, but if you have a child who handles work tasks for your business, you may be able to lower your own tax liability through what’s known as “income splitting”. As long as the child has designated duties and you keep detailed records of their work throughout the year, transferring a portion of your business’s income to the entrepreneur-in-training can help drop you into a lower income tax bracket.

Savings #10 – Your FreshBooks subscription

FreshBooks isn’t just a great tool for getting a hold of your business’s finances—it’s also a valuable tax deduction. Most tax advisors agree that software-as-a-service (SaaS) products should be included in the “Other expenses” category of your tax reports, as they don’t involve a purchase that loses value over time.

Remember, these deductions should only be considered general guidelines and not a replacement for tax advice by a certified professional.

Every business is different so if you’re looking for a professional to talk to you can use the FreshMap to find one in your area.


about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.