Top Tax Deductions for Shop Owners (2024)

Tax season can be a bit tricky and confusing for business and shop owners. The reason is that many don't know about certain deductions they can use, and even if they've heard of them, they might not understand how they work. While making money and sales is essential for shop owners, they should also pay attention to tax deductions. Why? Because these deductions can help them save money by reducing the amount of tax they have to pay. It's like a little reward for their hard work!

So, it's not just about saving on taxes; it's also about making their money work better for them in the long term. Now, you might be wondering, what exactly are these deductions that shop owners can take advantage of? This is where the expertise of a small business accountant becomes invaluable. By collaborating with a knowledgeable accountant, shop owners can navigate through the intricate landscape of tax deductions, ensuring they invest wisely and get the most out of their money, all while enjoying the added bonus of significant tax savings.

Tax deductions for shop owners

1. Cost of goods sold

The cost of goods sold (COGS) refers to the direct costs associated with producing or purchasing the goods you sell. This includes the cost of raw materials, labor directly involved in production, and any other costs directly tied to the creation of the products you offer.

Calculating COGS

The formula for calculating COGS is straightforward:

COGS = (Opening Inventory) +(Purchases)− (Closing Inventory) COGS= (Opening Inventory) +(Purchases)− (Closing Inventory)

This formula accounts for the materials and goods you had at the beginning of a specified period, adds new purchases, and then subtracts the value of remaining inventory at the end of that period.

2. Business licenses and permits

To run a business or a shop, you must have the right papers and permissions. The cool part is, you can save money on taxes for these things. Here's what you need:

Licenses: These are like special permissions to run your business. It could be for selling alcohol, being a professional, running a business in general, and more.

Permits: These are official papers from the government that say you're allowed to do certain things. For example, you might need a resale permit to sell certain items. Or you might need a permit to sell specific goods. All these papers can help you save money when it's tax time.

3. Services and subscriptions

To keep your business going nowadays, you'll probably have to spend money on different services and subscriptions. The good news is, you can get a break on your taxes for these. Here's a list of the services you can include:

Software subscriptions: This covers fees for using different computer programs, such as accounting software, music subscriptions, apps, Point of Sale (POS) systems, scheduling systems, and more.
Utilities: The money you pay for things like internet, heat, electric, water, and garbage services can be part of your tax deductions.
Security systems: If you have security measures in place for your business, the costs for those can also help you save on taxes.
Office supplies: Everyday things you use in your business, like paper, boxes, staples, pens, and more, can be considered for tax deductions.
Telephone and landline bills: The expenses related to your phone services, both mobile and landline, can also be included in your tax deductions.

4. Decor and property expenses

When you spend money to make your shop look nice or improve it, guess what? You might get some of that money back when it's tax time. Here's what you can include:

Inside stuff: The money you spend on things like curtains, rugs, furniture, and other decorations inside your shop can be part of your tax deductions.
Art and wall decorations: If you've put up art or decorations on the walls, that expense counts too.
Small decorative items: Even the little things, like small decorations around your shop, can be considered for a tax deduction.
Lights and lamps: The cost of lights, lamps, and other elements that make your shop look bright and inviting can be included.
Repairs: If you've had to fix things in your shop, like a broken window or upgrade your doors, those costs can help you save on taxes.
Security stuff: Money spent on installing or upgrading security equipment, such as CCTV cameras, and the costs for maintaining them, can also be part of your tax deductions.

Just make sure to keep a record of these expenses to make things easier when it's time to do your taxes.

5. Bank fees

When it comes to the money stuff for your business, there's a cool thing: you can save on taxes for certain fees. Here's what you can count:

Bank stuff: The fees your bank charges you, like ATM fees, service fees, deposit fees, and transfer fees, can be part of your tax deductions.
Credit card stuff: If you use a credit card for your business, the fees you pay, such as annual payments, late payment fees, and interest, can also help lower your taxes.
Loan and leasing stuff: If you're dealing with loans or leasing equipment, the interest you pay on a loan and the fees for leasing equipment are things you can include in your tax deductions.

Remember to keep track of these fees, and it might make tax time a bit easier on your wallet!

6. Travel expenses

Let's talk about travel expenses – the money you spend when you're on the go for your business. Here's what you can include for tax deductions:

Car costs: If you use your car for work-related stuff like going to the office, getting groceries, or buying supplies, you can count the money you spend on fuel.
Business trips: When you have to travel for meetings with partners, employees, vendors, or consultants, the expenses from these trips can also be part of your tax deductions.
Getting a new ride: If you had to rent or buy a new vehicle specifically for your business, the costs for that can help lower your taxes.

7. Shipping and packaging

Because of COVID-19, many regular shops started delivering things to people's homes or letting them pick up stuff. The money spent on these things is considered important and normal according to the tax rules, so you can lower your taxes. Here's what you can include:

Sending stuff: If you're mailing things or using delivery services, the money you spend on postage and delivery fees can be part of your tax deductions.

Shipping costs: Any expenses related to shipping or charges for getting things delivered can also help you save on taxes.

Packing stuff: The money you spend on packing and organizing things for delivery, like boxes, envelopes, bubble wrap, packaging tape, and labels, can be counted as well.

8. Advertising and promotion

Have you spent any amount on your advertising and promotion? For any ad spend or marketing spends, you can claim a tax deduction on expenses such as:

Marketing stuff: Money spent on things like print ads, newspaper ads, big signs, and billboards can be part of your tax deductions.
Promotional things: If you made stuff to promote your business, like flyers, brochures, business cards, or even cool posters, those costs count too.
Online marketing: The money you spend on digital marketing, like ads on social media, Facebook, Google, or sending emails, can also be deducted from your taxes.
Website costs: If you have a website, the money you spend on things like the web address, hosting, special themes, plug-ins, or extra costs for designing, developing, and creating content for your website can be part of your tax savings.

9. Equipment purchases and rentals

If you bought things like machines or tools for your shop, you can save money on taxes! Also, if you're renting stuff for your shop, the money you pay for that can be deducted too.

Now, here's the trick: Depending on how much the things cost, you can either show the full expense in the year you bought them or spread it out over a few years. This spreading-out thing is called 'depreciation,'.

For example, let's say you got a printer for $5000, and you plan to use it for five years. With depreciation, you can say, 'Okay, I'll count $1000 each year for the printer.' It's like a way to show how much the thing is wearing out over time.

Now, there are rules about how to do this, and it can get a bit tricky. So, it's a good idea to talk to your accountant or advisor to figure out the best way to do this for your business.

10. Insurance

Having insurance for your shop is not just a good idea – it's required by law to make sure accidents or damages are taken care of. The good news is that the money you spend on insurance can be taken off your taxes. Here's what you can include:

General liability coverage: This helps if someone gets hurt or their stuff gets damaged while they're in your shop.
Theft and accidental insurance: If something is stolen or accidentally damaged, this type of insurance can cover the costs.
Loss-of-income insurance: If your shop can't operate for a while, this insurance helps cover the money you would have made.
Property and building insurance: This covers damage to your shop and the building it's in.
Health and life insurance for employees: If you provide insurance for your employees, the cost is tax-deductible.
Auto insurance: If you use vehicles for your business, the money you spend on insurance for those vehicles can also be deducted.
Liability coverage: This helps if your business is responsible for harming someone or their property.
Malpractice insurance: If your business involves providing services, like in healthcare, malpractice insurance can be part of your tax deductions.

11. Professional fees

If you pay someone who's not a regular employee for their advice or services, it's called a professional fee. This covers:

Money paid to lawyers and attorneys.
Payments to accountants and bookkeepers.
Fees for financial advisors.
Payments to people you hire for specific jobs, but they're not on your regular payroll.

12. Employee expenses and payroll

If your shop has people working for it, like employees, you can deduct the money you pay them from your taxes. This includes their regular pay, any extra bonuses, commissions, or other payments. But, there are some rules:

This deduction is for regular employees, not for partners, LLC members, owners, or freelancers. They're in a different category.

How to claim business tax deductions?

If you own a small business or a shop and want to save money on your taxes, here's what you do:

Fill out a form: There's a special form called Schedule C for businesses. This form helps you figure out how much money your business made, and it helps determine how much tax you might need to pay for the year.
Tell the tax people: After figuring out your business's profit using Schedule C, you share this information on your personal 1040 form. This is where you pay your taxes.
Keep good records: It's important to keep all the papers and details about your money organized. This helps when you're doing taxes or looking at how your business is doing financially.

Conclusion

In the blog above, we've outlined key tax deductions that shop owners can leverage to optimize their finances. Each deduction comes with considerations, and it's advisable to consult with a CPA or tax advisor to ensure eligibility and maximize the benefits. Additionally, the blog emphasizes the importance of exploring various tax-saving options based on specific business requirements. Making informed financial decisions is crucial, and seeking professional advice contributes to effective tax planning.

Now, to further enhance your financial management, consider the services of BookkeeperLive. As a dedicated outsourcing company, BookkeeperLive specializes in providing comprehensive accounting and bookkeeping services tailored to the unique needs of your business. Navigating the financial landscape becomes more accessible with our experienced team, committed to simplifying your financial processes. Take advantage of our free trial to experience the benefits firsthand before making a commitment. Whether you're seeking assistance with tax deductions or overall financial clarity, BookkeeperLive is here to support your business.

FAQs

Q: Are shop owners eligible for the Section 179 deduction?

Yes, Section 179 allows businesses to deduct the full cost of qualifying equipment and property purchases in the year they are placed in service, rather than depreciating them over time.

Q: How can shop owners deduct expenses for home office use?

If a portion of your home is used exclusively for business, you may be eligible for a home office deduction. This can include a percentage of your mortgage or rent, utilities, and maintenance costs.

Q: Are expenses related to employee benefits deductible for shop owners?

Yes, contributions to employee benefit plans, such as health insurance and retirement plans, are generally tax-deductible for businesses.

Q: Can shop owners deduct expenses for continuing education and training?

Yes, costs associated with maintaining and improving skills relevant to your business, including workshops, seminars, and training programs, are usually deductible.

Q: Can shop owners carry forward unused deductions to future years?

In some cases, if the total deductions exceed the business's income, the excess may be carried forward to offset income in future years. Consult with a tax professional to understand the specific rules and limitations.

Tax season can be a bit tricky and confusing for business and shop owners. The reason is that many don’t know about certain deductions they can use, and even if they’ve heard of them, they might not understand how they work. While making money and sales is essential for shop owners, they should also pay attention to tax deductions. Why? Because these deductions can help them save money by reducing the amount of tax they have to pay. It’s like a little reward for their hard work!

So, it’s not just about saving on taxes; it’s also about making their money work better for them in the long term. Now, you might be wondering, what exactly are these deductions that shop owners can take advantage of? This is where the expertise of a small business accountant becomes invaluable. By collaborating with a knowledgeable accountant, shop owners can navigate through the intricate landscape of tax deductions, ensuring they invest wisely and get the most out of their money, all while enjoying the added bonus of significant tax savings.

Tax deductions for shop owners

1. Cost of goods sold

Calculating COGS

The formula for calculating COGS is straightforward:

COGS = (Opening Inventory) +(Purchases)− (Closing Inventory) COGS= (Opening Inventory) +(Purchases)− (Closing Inventory)

This formula accounts for the materials and goods you had at the beginning of a specified period, adds new purchases, and then subtracts the value of remaining inventory at the end of that period.

2. Business licenses and permits

To run a business or a shop, you must have the right papers and permissions. The cool part is, you can save money on taxes for these things. Here’s what you need:

Licenses: These are like special permissions to run your business. It could be for selling alcohol, being a professional, running a business in general, and more.

Permits: These are official papers from the government that say you’re allowed to do certain things. For example, you might need a resale permit to sell certain items. Or you might need a permit to sell specific goods. All these papers can help you save money when it’s tax time.

3. Services and subscriptions

To keep your business going nowadays, you’ll probably have to spend money on different services and subscriptions. The good news is, you can get a break on your taxes for these. Here’s a list of the services you can include:

Software subscriptions: This covers fees for using different computer programs, such as accounting software, music subscriptions, apps, Point of Sale (POS) systems, scheduling systems, and more.
Utilities: The money you pay for things like internet, heat, electric, water, and garbage services can be part of your tax deductions.
Security systems: If you have security measures in place for your business, the costs for those can also help you save on taxes.
Office supplies: Everyday things you use in your business, like paper, boxes, staples, pens, and more, can be considered for tax deductions.
Telephone and landline bills: The expenses related to your phone services, both mobile and landline, can also be included in your tax deductions.

4. Decor and property expenses

When you spend money to make your shop look nice or improve it, guess what? You might get some of that money back when it’s tax time. Here’s what you can include:

Inside stuff: The money you spend on things like curtains, rugs, furniture, and other decorations inside your shop can be part of your tax deductions.
Art and wall decorations: If you’ve put up art or decorations on the walls, that expense counts too.
Small decorative items: Even the little things, like small decorations around your shop, can be considered for a tax deduction.
Lights and lamps: The cost of lights, lamps, and other elements that make your shop look bright and inviting can be included.
Repairs: If you’ve had to fix things in your shop, like a broken window or upgrade your doors, those costs can help you save on taxes.
Security stuff: Money spent on installing or upgrading security equipment, such as CCTV cameras, and the costs for maintaining them, can also be part of your tax deductions.

Just make sure to keep a record of these expenses to make things easier when it’s time to do your taxes.

5. Bank fees

When it comes to the money stuff for your business, there’s a cool thing: you can save on taxes for certain fees. Here’s what you can count:

Bank stuff: The fees your bank charges you, like ATM fees, service fees, deposit fees, and transfer fees, can be part of your tax deductions.
Credit card stuff: If you use a credit card for your business, the fees you pay, such as annual payments, late payment fees, and interest, can also help lower your taxes.
Loan and leasing stuff: If you’re dealing with loans or leasing equipment, the interest you pay on a loan and the fees for leasing equipment are things you can include in your tax deductions.

Remember to keep track of these fees, and it might make tax time a bit easier on your wallet!

6. Travel expenses

Let’s talk about travel expenses – the money you spend when you’re on the go for your business. Here’s what you can include for tax deductions:

Car costs: If you use your car for work-related stuff like going to the office, getting groceries, or buying supplies, you can count the money you spend on fuel.
Business trips: When you have to travel for meetings with partners, employees, vendors, or consultants, the expenses from these trips can also be part of your tax deductions.
Getting a new ride: If you had to rent or buy a new vehicle specifically for your business, the costs for that can help lower your taxes.

7. Shipping and packaging

Because of COVID-19, many regular shops started delivering things to people’s homes or letting them pick up stuff. The money spent on these things is considered important and normal according to the tax rules, so you can lower your taxes. Here’s what you can include:

Sending stuff: If you’re mailing things or using delivery services, the money you spend on postage and delivery fees can be part of your tax deductions.

Shipping costs: Any expenses related to shipping or charges for getting things delivered can also help you save on taxes.

Packing stuff: The money you spend on packing and organizing things for delivery, like boxes, envelopes, bubble wrap, packaging tape, and labels, can be counted as well.

8. Advertising and promotion

Have you spent any amount on your advertising and promotion? For any ad spend or marketing spends, you can claim a tax deduction on expenses such as:

Marketing stuff: Money spent on things like print ads, newspaper ads, big signs, and billboards can be part of your tax deductions.
Promotional things: If you made stuff to promote your business, like flyers, brochures, business cards, or even cool posters, those costs count too.
Online marketing: The money you spend on digital marketing, like ads on social media, Facebook, Google, or sending emails, can also be deducted from your taxes.
Website costs: If you have a website, the money you spend on things like the web address, hosting, special themes, plug-ins, or extra costs for designing, developing, and creating content for your website can be part of your tax savings.

9. Equipment purchases and rentals

If you bought things like machines or tools for your shop, you can save money on taxes! Also, if you’re renting stuff for your shop, the money you pay for that can be deducted too.

Now, here’s the trick: Depending on how much the things cost, you can either show the full expense in the year you bought them or spread it out over a few years. This spreading-out thing is called ‘depreciation,’.

For example, let’s say you got a printer for $5000, and you plan to use it for five years. With depreciation, you can say, ‘Okay, I’ll count $1000 each year for the printer.’ It’s like a way to show how much the thing is wearing out over time.

Now, there are rules about how to do this, and it can get a bit tricky. So, it’s a good idea to talk to your accountant or advisor to figure out the best way to do this for your business.

10. Insurance

Having insurance for your shop is not just a good idea – it’s required by law to make sure accidents or damages are taken care of. The good news is that the money you spend on insurance can be taken off your taxes. Here’s what you can include:

General liability coverage: This helps if someone gets hurt or their stuff gets damaged while they’re in your shop.
Theft and accidental insurance: If something is stolen or accidentally damaged, this type of insurance can cover the costs.
Loss-of-income insurance: If your shop can’t operate for a while, this insurance helps cover the money you would have made.
Property and building insurance: This covers damage to your shop and the building it’s in.
Health and life insurance for employees: If you provide insurance for your employees, the cost is tax-deductible.
Auto insurance: If you use vehicles for your business, the money you spend on insurance for those vehicles can also be deducted.
Liability coverage: This helps if your business is responsible for harming someone or their property.
Malpractice insurance: If your business involves providing services, like in healthcare, malpractice insurance can be part of your tax deductions.

11. Professional fees

If you pay someone who’s not a regular employee for their advice or services, it’s called a professional fee. This covers:

Money paid to lawyers and attorneys.
Payments to accountants and bookkeepers.
Fees for financial advisors.
Payments to people you hire for specific jobs, but they’re not on your regular payroll.

12. Employee expenses and payroll

This deduction is for regular employees, not for partners, LLC members, owners, or freelancers. They’re in a different category.

How to claim business tax deductions?

If you own a small business or a shop and want to save money on your taxes, here’s what you do:

Fill out a form: There’s a special form called Schedule C for businesses. This form helps you figure out how much money your business made, and it helps determine how much tax you might need to pay for the year.
Tell the tax people: After figuring out your business’s profit using Schedule C, you share this information on your personal 1040 form. This is where you pay your taxes.
Keep good records: It’s important to keep all the papers and details about your money organized. This helps when you’re doing taxes or looking at how your business is doing financially.

Conclusion

In the blog above, we’ve outlined key tax deductions that shop owners can leverage to optimize their finances. Each deduction comes with considerations, and it’s advisable to consult with a CPA or tax advisor to ensure eligibility and maximize the benefits. Additionally, the blog emphasizes the importance of exploring various tax-saving options based on specific business requirements. Making informed financial decisions is crucial, and seeking professional advice contributes to effective tax planning.

Now, to further enhance your financial management, consider the services of BookkeeperLive. As a dedicated outsourcing company, BookkeeperLive specializes in providing comprehensive accounting and bookkeeping services tailored to the unique needs of your business. Navigating the financial landscape becomes more accessible with our experienced team, committed to simplifying your financial processes. Take advantage of our free trial to experience the benefits firsthand before making a commitment. Whether you’re seeking assistance with tax deductions or overall financial clarity, BookkeeperLive is here to support your business.