How to Cheat Uncle Sam (Legally)

A tax deduction is an expense that can reduce the amount of money a person owes on their taxes. A fun way to think of it is as an opportunity to cheat the system — legally, of course. Provided you meet the qualifications, it’s your right to claim these deductions and pay Uncle Sam a few dollars less. As a business owner, there are many possible deductions you should consider, such as writing off your auto insurance and deducting credit card fees.

Possible business deductions

At tax time, business owners tend to be weighed down by the stress of documentation gathering and extra accounting costs as well as the dread of finding out how much money they owe to the government. Deductions can help mitigate these tax costs. 

There is an abundance of deductions business owners can claim to reduce the amount of taxes they or their business owes. Knowing the right deductions means tax season doesn’t have to hurt you or your company financially. Some of these lesser-known deductions might surprise you and help your business save big time. Below are a dozen you and your business may qualify for.

Furniture for the office

Office furniture can include the ergonomic office chair and desk you need for your home office or the leather couch in the waiting room of your practice. Perhaps you need a big table and a full set of chairs for the conference room used by your growing company. The IRS acknowledges your business needs furniture and allows you to claim it. This means when it comes to calculating your taxes, those are all business expense deductions, saving you valuable tax dollars.

Supplies for the office

Every pen, stapler, rubber band, bundle of paper, ink cartridge, printer, computer, keyboard, software or subscription purchase and work-related postage, is covered under office supplies. Whether your office is in your home or a separate property, the IRS lets you deduct items your company uses to conduct its operations. These kinds of items might seem small but, over time, their costs add up. Keeping track of these expenses throughout the year can lead to great savings come tax time.

Inventory or cost of goods

The IRS allows businesses to deduct the cost of purchasing or making products needed for resale. If a company needs fabric to make shirts or furniture, the cost of that fabric purchase can be deducted. After the shirts are done or the furniture is complete, the business could use a storage unit to keep the surplus product until sold. The cost of that storage and potentially even the wages of the involved employees can be deducted.

Rent expenses and property repairs

Home-based small businesses can deduct five dollars per square foot of the area used exclusively for business, up to a total of 300 square feet of the house used for business purposes. Meanwhile, the cost of renting a space for your business is fully deductible. But while many business owners are aware they can claim their rent or home office for deductions, many don’t realize they can also claim repairs to their office property. No one likes surprise plumbing repair costs or the price of fixing a leaky roof. Knowing you can deduct these associated costs on your tax return can help ease the financial burden.

Employee entertainment and gifts

The IRS allows business owners to deduct 100 percent of the costs for all social events held for employees. For example, your business can host a holiday party or a summer get-together and deduct the expense from its taxes. You can also deduct $25 per person, per year, for employee gifts. Now you can keep employee spirits positive along with your company finances. [Related article: How to Keep Employees Happy During Down Times]

Taking clients out for meals and entertainment

Sharing a meal with a potential or existing client can help improve business relations. If you take your client out for food or entertainment and discuss business, you can deduct the expense legally. As long as the gathering is considered a business setting for business purposes — think a business suite at a sports venue — you can deduct 50 percent of the entertainment expenses. Documentation for business meals requires the date, time and business-related details along with the receipt. Save and document any receipts so you can deduct these costs on your taxes.

Child and dependent care costs

Trying to manage a business and care for young children is an incredibly difficult task. Small business owners with children 12 or younger or adult dependents in need of care while running their business can write off the cost of care expenses. The cost of daycare or in-home nannies can be financially challenging, so you won’t want to miss out on claiming this tax-saving deduction if you qualify. [Find out how to work around your kids without losing your mind.]

Energy efficiency upgrades and expenses

Making energy-efficient updates to a commercial property or building your own can qualify you for tax deductions. Adding solar paneling and wind turbines or updating energy-efficient lights, heating or cooling can reduce not only your utility costs but also your taxes. If you show the IRS you’ve reduced energy consumption by 50 percent, you can receive the full available deduction.

Education costs

Running a successful business requires a lot of knowledge accumulation. Depending on how many staffers you can afford to hire, you may need to be a master of marketing, acceptable at accounting, have an eye for design, possess honed HR and interpersonal skills and have product expertise. Staying on top of current industry trends and accumulating all this know-how means education. Luckily, the IRS will let you deduct the cost of education that adds value to your business. This means you can attend a conference or class to gain or sharpen the skills necessary to operate your company and then write off those costs.

Promoting and marketing the business

Most businesses cannot survive on word-of-mouth recommendations alone and must promote their events and market their products or services. Fortunately, business owners can deduct a number of items and costs related to advertising their businesses. This could be the business cards you hand out or the social media ads you purchase, along with your website design, billboards, brochures or posters. The IRS knows businesses need to advertise to be successful, so make sure you track promotional costs for tax deductions.

Workers’ compensation insurance

The premiums paid for workers’ compensation are tax-deductible. Some jobs carry a higher risk of injury and workers’ compensation is no-fault insurance that pays medical benefits and lost wages to employees injured on the job. It can help employers avoid costly injury claims and lawsuits. Many states require businesses to have this coverage and most employers offer this benefit — no matter the job’s level of risk. Maintaining this liability insurance can help save your business the cost of paying for an injured employee’s medical expenses and lost wages and claiming this deduction can help offset the cost of the insurance. 

Taxes themselves

This one might be the most surprising: Business owners can avoid or deduct some taxes. For instance, if your business resells cans of soda, you don’t need to pay sales tax when purchasing that soda. This lets you save money upfront, but there are other taxes your business may qualify to deduct when filing a return. You can write off up to $10,000 of state and local income taxes, franchise taxes, sales taxes, real estate taxes and personal property taxes.

Prevent tax headaches

There are several other ways to help your business pay Uncle Sam a little less. Strategic tax planning, which involves thinking about taxes year-round and using the best accounting software can help you effectively tackle your business’s finances and possibly end up with bigger deductions. Make sure you have the proper documentation to prove you qualify for every deduction you claim and that you itemize each appropriately on your return. These are key to keeping your small business from being audited.