September 12, 2023
So, you’ve taken the leap and upgraded your LLC to an S-Corp! Congratulations! Now you are probably wondering what expenses you should be keeping track of to maximize the tax benefits. Well, as an S-Corp, there are quite a few business expenses that you can take advantage of.
Business Use of Home and Utilities
Now that you are your own boss, you can take advantage of the Business Accountable Plan to deduct the expense of maintaining a home office. A Business Accountable Plan allows your S-Corporation to pay you for the cost of using a home office, and this is done as a tax-free employee business expense reimbursem*nt through payroll. Some allowed reimbursable expenses include property taxes, utilities, mortgage interest, and general repairs. If rather than utilizing space in your personal home, you pay rent for an individual office or time-shared space, you can deduct the cost of rent and separate utilities on your business tax return. The Business Accountable Plan is a relatively new tax regulation that you may not know about. Let one of your Formations team know that you are interested in this new savings strategy and we can get you set up.
Cell Phone and Internet
That cell phone always at your side or in your hand now serves a business purpose. You can either deduct the percentage used for business purposes or set up a separate line specifically for your business and deduct the cost of the added line. And, in today’s digital world, the cost of your internet is also a business deduction. Both the cell phone and internet expenses also fall under the new Business Accountable Plan as reimbursable employee business expenses.
Vehicle, Mileage, and Other Transportation
If you drive around to meet clients or pick up supplies and materials, this means you can now deduct your mileage and the business use of your car. The IRS allows you to deduct the actual expenses, such as fuel, maintenance, and repairs, or the miles you drive throughout the year.There are some amazing apps available to help track the mileage, and this is something you'll want to take advantage of with the 2023 business mileage rate at 65.5 cents per mile.
Don’t want to track mileage or put wear and tear on your own car but need to get around town to meet clients? That’s okay! You can also deduct the cost of a taxi, public transport, Uber, and Lyft.
At Formations we typically prefer customers to set up their car as a personal asset and track their business mileage. Then, using the Business Accountable Plan, we set things up so that you can have the standard mileage rate reimbursed to you through payroll. This option is far easier for record retention.
We also discourage placing the vehicle in the company’s name because this forces you to use actual expenses and is subject to verifying specific rules for asset disposition.
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Books, Literature and Education
As an S-Corp owner you are telling the world that you have an amazing product to share, either an item you are selling or your own skills. This means you will want to stay on top of your chosen industry. The cost of books, literature, webinars, continuing education courses, and other classes that help your business grow are all expenses that you can deduct.
Equipment and Software
Now that you have a business, of course, you need to equip it! Your computer, printer, office furniture, and even the cost of your cell phone are all allowed expenses. And any software you must purchase to run and maintain your business is also deductible.
Be sure to discuss the potential depreciation of various equipment purchases with the experts at Formations. New de minimis equipment rules were implemented in 2018 that allow for direct expensing of any equipment under the cost of $2500. What this means is that equipment purchased under this threshold amount can be expensed in the year it is purchased, rather than depreciated over its designated useful life. Feel free to discuss any future equipment purchases with your Formations team so we can help you maximize your taxable expenses.
Supplies and Gifts
And, now that you have your office set up and equipped and you are ready to meet clients, you are going to need to purchase various supplies, such as paper, pens, and envelopes, all of which are tax-deductible. And you want to advertise and market your business, so you may need to purchase business cards or signage, possibly even have a website designed. Again, all these expenses are allowable deductions. What if you help someone buy a new home and you want to purchase a housewarming gift? Allowed! Buy supplies on Amazon? Tax-deductible!
Professional Services, Consultations, and Contractors
As a business owner, you recognize that there are times when you need to seek the advice of other experts. Whether you have to reach out to a graphic designer to create an amazing website to showcase your business or contact a lawyer for legal advice, the cost of these professional consultations is deductible. Yes, even the cost you pay to work with us here at Formations is allowed! And, if you need to hire independent contractors to perform services for your business, such as freelance designers, general carpentry, or marketing experts, these fees also qualify for tax deductions. Be sure to discuss the rules for issuing 1099’s to these contractors with your Formations team.
Business Meals
If you take a prospective client out to lunch or meet a customer for coffee, a percentage of this expense may be allowed. The tax rules for deducting business meals and entertainment have recently changed, so be sure to let us know if you have any questions. We here at Formations are always on top of ever-changing tax rules and how they impact our customers. Business meals qualify as an employee business expense that can be reimbursed through payroll using the Business Accountable Plan.
Insurance
As a business owner, you want to protect the assets of your company that you are working so hard to grow. General liability insurance is a tax-deductible expense. And, if you pay for health insurance for yourself, your family, and your employees, there are amazing tax benefits available that we want to help you take advantage of.
Conclusion
Almost any expense that promotes the day-to-day running of your business or furthers the growth of the business is an allowable tax deduction. And the more expenses you can keep track of the more you reduce your potential tax liability.
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