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.
According to the IRS, business expenses must be both “ordinary and necessary” to be deductible, but these definitions vary depending on a person’s understanding of the tax rules and the strength of their moral compass when it comes to filing their taxes.
In addition to figuring out how much of your larger business expenses inventory, wages, rent, equipment, utilities can be deducted, there are some common but surprising items that can reduce the amount of income subject to federal and state taxation .
The agency provides an exhaustive amount of qualifying information on small business tax deductions that allow you to reduce your taxable income. Here are five unexpected tax deductions every small business owner should keep in mind before filing.
1. Gym Memberships
Gym memberships are generally not tax deductible. However, there are situations where you could claim a gym membership on your tax return. Certainly, if your small business is fitness-related or requires you to be in good shape (for example, personal trainers), this may qualify you to deduct the cost of the gym membership or equipment from your taxes, according to Keeper Tax Inc.
You may also be able to list your gym membership as a medical expense, but that would be considered an itemized personal expense. If you have a medical diagnosis for something like obesity or high blood pressure and have been prescribed weight loss activities or support groups held at a gym, the classes or membership could be considered legal.
2. Home Renovations
If your home is your principal place of business or you use a regular, exclusive space in your home to conduct business, home improvements qualify for tax deductions. While you can’t claim a deduction for a workspace or home office if you also work at an employer’s office, home office remodeling or improvements are deductible if they’re only in the parts of your home used for business.
Even improvements that benefit your home in general (eg, heating system repair) are partially deductible. Keep in mind that the IRS follows strict rules about what constitutes a home office, so make sure you follow them. A laptop on the kitchen table isn’t considered a desk, so don’t expect your new showroom kitchen and entertainment space to be green-lighted when you try to claim it as a deduction on your small business tax return.
3. Travel in North America
Business trips are very common. If you need to travel for any business reason, such as meeting a client or attending a conference, you can deduct 100% of the 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 of North America is not deductible unless it is rationalized as “ordinary and necessary. ” However, no reasons are required for air, train or bus tickets, accommodation and parking, taxes and fees associated with business conducted in North America.
Of course, as with deduction, documentation and justification might be required for anything that is considered to be out of the ordinary. The IRS will consider your business trip a vacation if no business is disclosed.
4. Pets At Work
Of course, if you have a service or emotional support animal or a guide dog, you can deduct the cost of their purchase, training and maintenance as medical expenses. But you may be able to get a tax deduction if you also have working animals that are necessary for the operation of your business.
However, as Business News Daily reported, you must be careful to prove and document the purpose or service your pet provides to the business. For example, if you’re Pete from “Pete’s Performing Parrots,” you should have no problem claiming certain tax deductions. However, for less obvious examples, all business, advertising and operating expenses you claim must be related to your workplace pet.
ertain animals in certain situations,” said Joshua Zimmelman, president of Westwood Tax & Consulting. “For example, you can say a Rottweiler is a guard dog, but don’t try that with a hamster, or you’ll probably raise a red flag with the IRS.”
5. Landscaping Improvements
Unlike office space in your home, it’s more difficult to justify lowering the cost of maintaining the exterior of your home through improvements. However, if you regularly meet with clients at your home, you can deduct some of your landscaping expenses if you can show that they are directly related to your business.
As noted by Forbes, in Langer v. Commissioner, driveway repairs and lawn maintenance were held to be partially deductible by the Tax Court after petitioners claimed substantial home business expenses related to depreciation the house, the lighting, the alley and the landscaping.