Small business tax deductions and credits not to miss this year.

Dec 07 2018 | Contributing writer Aaron Berson, manager and cloud accounting ecosystem curator, EisnerAmper

All business owners pay taxes. But a bit of research by you and your accounting professionals can help you avoid paying more in tax than you absolutely have to.
Please note: The information in this article does not constitute tax advice and should not be relied on as such. You should always obtain independent, professional accounting, tax, financial, and legal advice before engaging in any transaction.

Many people new to preparing business taxes miss out on a reduced tax bill because they don’t know about certain deductions or credits. Aaron Berson, manager and cloud accounting ecosystem curator at accounting firm EisnerAmper, gives some tips on tax deductions and credits to consider when discussing your taxes with your accounting advisors.
 
Home office deduction. If you work solely (or mostly) from home, Berson notes that you may be able to deduct costs related to the office space, such as rent or mortgage payments, insurance, utilities, and internet service. Your tax and accounting advisors can help you figure out how much might be deductible. In general, the amounts of the deductions are based on the square footage of the office compared to the rest of your home. For example, a 100-square-foot office in a 1,000-square-foot home may entitle you to deduct 10% of the indirect costs (like general home repairs); and you may be able to deduct 100% of direct costs.
 
Office furniture, computers, and decor. You may be able to deduct the cost of outfitting your home office with desks, chairs, computers, and shelves, but these deductions are treated differently than are expenses like rent and utilities. Furniture and decor are fixed assets, which you normally have to depreciate over several years – that is, you can only write off a portion of the item’s value each year. However, you may have the option to deduct the total cost of the item during the first year that you use it – this is called a “Section 179” election. Your accountant can help you complete the appropriate forms.
 
Often overlooked, Berson says, is that you may be able to deduct the cost of decorative items used solely for your office, like carpets and paintings – but only if they are low in value. (So don’t splurge on a vintage Persian carpet thinking you’ll be able to offload some of the cost to the IRS.)
 
Website costs. Many of the expenses associated with running your business website may be deductible – such as website hosting fees, web design services, logo design expenses, ecommerce payment processing fees, and stock photo rental costs.
 
Professional services fees. The costs of business-related legal and financial counsel may be deductible. But, Berson adds, don’t forget about other professional services you may have paid for, such as business coaching, weekend or seasonal employee retreats, and employee wellness sessions. Good advice from Berson: If some of the professional services are for personal use and not business, it’s best to have the provider create separate invoices for business and personal services.
 
Memberships and education. Not only may you be able to deduct costs for participating in professional organizations and networking events, you may be able to deduct the costs you cover for any employees’ participation. The same goes for business-related classes and continuing education you may fund.
 
Charitable donations. Just as you can deduct personal donations to your favorite organizations, your business may be able to deduct donations made in its name. The ability to deduct donations varies depending on the type of business you have – a sole proprietorship, an LLC, or a corporation.
 
Business funding. Don’t forget about the costs associated with keeping your business financially healthy. Most people know they can deduct accounting fees, but Berson explains that your business may be able to also deduct the interest on business loans, as well as legal fees associated with preparing loan contracts.
 
Marketing and advertising. This category also has many smaller costs that are easy to miss when deduction hunting. For instance, you may be able to deduct the cost of social media ads, as well as the cost of promotional materials for a trade show booth. You also may be able to deduct the cost of products you hand out to attendees at events, or sponsorship costs for conferences and trade shows.
 
Think about tax credits, not just deductions. Tax credits are more valuable to a small business than are deductions. Deductions lower your taxable income amount, while credits are direct dollar-for-dollar reductions of your tax bill. For example, if you’re investing in research and development for your business, you may be able to receive tax credits (as well as deductions). You also may be able to receive work opportunity tax credit (WOTC) for hiring military veterans and other people who have barriers to employment, such as formerly incarcerated people. And you may be able to get tax credits for buying alternative fuel vehicles, like electric cars.
 
Tax credits can apply to both state and federal taxes and vary widely in terms of amounts and categories. Ask your accountants to help you take advantage of tax credits – they can talk you through which ones may apply.
 
Think of the search for commonly overlooked tax deductions and credits as being a kind of treasure hunt. The more you find, the more money goes into your business.
 
Aaron Berson is a manager in EisnerAmper’s Private Business Services group. He serves a diverse client base from startups to mid-sized companies. His expertise includes financial statement preparation, tax preparation, and accounting system implementation and training as well as app ecosystem curation and education. 

 
This article is a general summary of certain U.S. Federal income tax laws and regulations relating to small businesses and is provided for informational purposes only. Neither PayPal nor EisnerAmper LLP represent or warrant that the guidance given in this article is complete, appropriate for any particular business purpose or use, or an accurate description of the laws that may apply to any particular taxpayer.

Frequently asked questions.

All US payment processors, including PayPal, are required by the Internal Revenue Service(IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal. Form 1099-K and B-Notice are tax forms which are applicable to holders of accounts both within and outside the United States since it pertains to income reporting for US persons/entities.

FATCA affects account holders that are outside the United States, and it requires PayPal to collect tax documents or certifications from account holders stating whether they are US persons. This includes, but is not limited to, business entities, and some individuals that open accounts outside the United States.

Tax Form 1099-K Tips:
  • If you feel there is a discrepancy in your tax Form 1099-K, please review your reconciliation report and provide us with the transaction ID(s) in question and the justification for why the transaction is being disputed. Click Contact at the bottom of any page to call or email us.
You can also view these additional 1099-K Help Center articles:
B-Notice Tips:
  • If there are any discrepancies with your tax identification number and legal name that was used by PayPal for tax Form 1099-K reporting filing with the IRS, you may receive an IRS B-Notice
  • The B-Notice mailing will provide you with all of the additional information we need from you.
    • If you received a 1st B-Notice (which happens the first year that the IRS identifies a mismatch in tax identification number/legal name), log in to your PayPal account and follow the Alert Notification to provide the requested information. You may need to download and fill out the IRS tax Form W-9 for PayPal to review.
    • If you received a 2nd B-Notice (which happens the second consecutive year that the IRS identifies a mismatch in tax identification number/legal name), you must provide either a copy of your Social Security Card (individuals or sole proprietors) or US IRS tax Letter 147C (entities). Log in to your PayPal account, and go to the Resolution Center to upload the document.
  • The IRS does not have an online solution for requesting a tax Letter 147 C; the IRS will mail or fax the letter to you. To contact the IRS for a Letter 147C, you should call the IRS's Business and Specialty Tax line at 1-800-829-4933 between 7am and 7pm, local time, Monday through Friday. Requesting a faxed copy may be the quickest manner to get a copy of the tax Letter 147C. You can also view our tax information page for more information.
  • Fully complete and sign the relevant form and upload it by logging into your PayPal account and following the Notification prompt.
  • Why did I receive an IRS B-Notice?

FATCA Tips:
  • Only impactful for account holders outside of the United States.
  • PayPal must collect documentation such as certification of non-US status and either a tax Form W-9 for US persons or entities that are subject to US tax, or a tax Form W8BEN/W8BEN-E for non-US persons or entities that are not subject to US tax withholding and reporting.
  • Most business users who need to provide the requested information will be able to do so by logging into their PayPal account and following the notification prompts.
You can also view these additional FATCA Help Center articles:You can find more tax related information on the PayPal IRS tax website.
If you are asked to provide your tax identification number (TIN), such as a Social Security Number (SSN) or Employer Identification Number (EIN), to your existing account(s), we will attempt to verify the information with the IRS. If your TIN fails verification, you will need to fill out an equivalent tax Form W-9.   

If the discrepancy persist, you may receive an IRS B-Notice later in the year to help you correct the mismatch.  

Some common reasons why a TIN may fail verification include:
  • Invalid Tax Identification Number (EIN, SSN, iTIN)
  • The name that appears on your PayPal account does not match with the IRS has on file.  
  • The business name registered onto your PayPal account is different than the legal business name.
    
Tip: Minor typographical errors with the name (missing period or capitalization) in a business name would not be why there is an IRS mismatch
    
How do I change the name on my PayPal account?
IRS rules (IRC Section 6050W) require that all U.S. payment processors, including PayPal, report gross payment information to the IRS about certain customers who receive payments for the sale of goods or services.

We’re required to report gross payments received by our customers who:
  • Receive more than $20,000 in gross payment volume from sales of goods, services, or donations in a single year, AND
  • Receive more than 200 payments for goods or services in the same year.
To ensure payment information is accurately reported, please update your account information by providing a Tax Identification Number. This can be a Social Security Number (SSN), Employer Identification Number (EIN) or Individual Tax ID number (ITIN).

Here’s how to add your Tax Identification Number to your PayPal account:
  1. Click the Business Profile icon beside "Log Out" and select Profile and settings.
  2. Scroll down to “Tax ID number” and click Add SSN, Add EIN, or Add ITIN.
  3. Enter, and then re-enter your ID number.
  4. Click Add.
While we don't report this information unless required to by law, we may still require this information be provided to continue uninterrupted access to your account.

Tax information and FAQs
Here's how to set up PayPal Here to calculate taxes for your transactions.
  1. Log in to PayPal Here on your device and navigate to Settings and click Tax.
  2. Set Add Tax to Total to ON.
  3. Ensure that the New (default) tax rate matches the rate of your state.
  4. Click the + icon to add additional tax options.
  5. Initiate a test payment for $1.00.
  6. The tax rate should automatically be added to the total. If you select the tax, additional tax rates should be displayed.