Taxes are one of those things we have to take in stride. We all pay taxes. As franchise owners, the best we can do is find those tax breaks to balance everything out. For a complete look at what you can deduct as a franchise owner, a good accountant is necessary. Your accountant can help you find all of the tax breaks you're entitled to and will save you money wherever possible. What you spend on an accountant will likely pay dividends when tax time finally rolls around. Here's a look at some of the top tax breaks you're entitled to as a business owner.
What Can Be Deducted?
Generally speaking, personal expenses aren't deductible, but there is a small caveat here that often gets overlooked. If you purchase something for both personal and business use, you can deduct part of that expense for your business. An example of this is your cell phone bill. Your cell phone expenses, which are often used personally and for business, can be deducted based on your company's cellphone use percentage. This same strategy applies to many things you use for business or for personal use, so don't overlook a deduction because it isn't used strictly for business. The tax laws change frequently, but your accountant will be up to date and able to help you determine how you take advantage of deductions for dual-purpose expenses. Many of these expenses seem small at first, but every bit of savings counts, so be sure you don't overlook any opportunity to deduct.
Some of the Most Common Deductions Include:
- Franchise Fees: As a franchise owner, you're well aware of the fees you pay to the franchisor. This means you can deduct the ongoing fees you pay to the franchisor for licensing. You can also deduct initial franchise fees and annual residuals and fees. The IRS categorizes these fees as Section 197 intangibles. While the initial fees are deductible, they must be written off over a period of 15 years. In any case, this is a great tax break for franchisees..
- Home Office: A home office can be written off. It's important to be careful here because the rules are specific. You can deduct limited expenses associated with maintaining a home office, including utilities, depreciation, and repairs. To claim home office deductions, the home office has to be your primary place of business. It must also be a separate room that you only use for work. You also need to be a business owner. The deduction is not available if you are self-employed or an employee of a company. It's essential to do everything by the book when you claim home office deductions because it's likely the IRS will scrutinize your tax returns.
- Travel Expenses and Meals: There's been some confusion here about what is deductible. A lot of business owners have taken advantage of this tax break for many years. First, keep in mind that entertainment is no longer allowed as a deduction. You can't buy tickets to a ballgame or take a client golfing and call that a business expense. You can deduct 50% of the meals with clients, during which business matters are discussed. Meals for business anniversaries and holidays for your employees can be 100% deducted, but make sure to keep all of your receipts.
Travel expenses are allowed deductions, but there are many rules regarding what can be deducted and how much. Long-distance and local travel are expenses you can write-off. When you leave your office to conduct business, those expenses are deductible, but they only apply to the employer, not employees. There are a couple of ways you can deduct car travel expenses, so check with your accountant to see which method will work best for you.
The Importance of Professional Tax Help
As we mentioned earlier, tax laws are subject to change and do change frequently. Many business owners like to believe they can do their own taxes, but using a professional can save you money and prevent you from doing things on your tax returns that can draw attention to how you file. An audit is something no franchise owner, or any business owner for that matter, wants to have to go through. The expense for accountants and the cost of preparing and filing your expenses used to be deductible, but
tax reform in 2018 brought about some changes in this area. Only certain types of businesses can still do this. Check with your accountant to see where you stand.
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