Yes, the cost of moving business equipment, supplies, and inventory from one business location to another is a deductible business expense, as are costs associated with the purchase or renting of a new location. However, make sure to keep good records to substantiate all costs associated with this business move.
If you relocate your business and it is a corporation or limited liability company, you can deduct the full expense of the move from company taxes. This includes all transport, packing, loading, and even surveys of the new location to make sure equipment and offices will suit. You can also deduct any brokerage commissions you pay to find a new space.
Notably, if your business is structured as a sole proprietorship or partnership, you can move the business and deduct the expenses if you meet two criteria. You have to move at least 50 miles and you are expected to work at least 39 weeks in the new location during the 12-month period after you make the move.
Have it in mind that these criteria are similar to those for employees, except you can write off all moving expenses, whereas employees have limits on the type of expenses they can write off, such as meals during travel.
Howbeit, if you reimburse employees for moving expenses, you are expected to include the amount of those reimbursements as a taxable benefit to the employees.
Furthermore, you may not deduct moving expenses that are not directly related to the move of your business, and you may not deduct personal moving expenses that do not meet the IRS distance or time test. Note that the IRS regulations do not permit you to take a moving expense deduction and a business expense deduction for the same expenses. The IRS says,
“You must decide if your expenses are deductible as moving expenses or as business expenses. For example, expenses you have for travel, meals, and lodging while temporarily working at a place away from your regular place of work may be deductible as business expenses if you are considered away from home on business.”
Have it in mind that things like meals are not deductible as a moving expense unless you can provide documentation that they were directly associated with the business move rather than your personal moving expenses.
For instance, if you followed the van carrying your business equipment to its new location and you directed the unloading, you may be able to deduct the costs associated with that trip as a regular business travel expense, including lodging and meals.
In addition, you may not deduct personal move expenses if you do not move within one year from the date you started work at the new location unless you can show that you were prevented from moving during that time. However, whether you are moving your business within your state or from state to state, you need to know what’s deductible and what isn’t.
Other Business Tax Deductions to Know
The Internal Revenue Service has many regulations about what moving expenses can be deducted. Howbeit, aside from moving expenses, each of these expenses are tax deductible.
Salaries and Benefits
Salaries, benefits, and even vacation time paid to employees are generally tax-deductible, as long as they meet a few criteria:
- The “employee” is not the sole proprietor, a partner, or an LLC member
- The salary is reasonable, ordinary, and necessary
- The services were actually provided
Advertising and Promotion
The cost of advertising and promotion is entirely deductible. This can include things like:
- Hiring someone to design a business logo
- The cost of printing business cards or brochures
- Purchasing ad space in print or online media
- Sending cards to clients
- Launching a new website
- Running a social media marketing campaign
- Sponsoring an event
Nonetheless, you cannot deduct amounts paid to influence legislation (i.e., lobbying) or sponsor political campaigns or events.
Note that if you rent a business location or equipment for your business, you can deduct the rental payments as a business expense. However, rent paid on your home should not be deducted as a business expense, even if you have a home office. That rent can be deducted as a part of home office expenses.
You can also deduct the premiums you pay for business insurance. This may include:
- Property coverage for your furniture, equipment, and buildings
- Liability coverage
- Group health, dental and vision insurance for employees
- Professional liability or malpractice insurance
- Workers compensation coverage
- Auto insurance for business vehicles
- Life insurance that covers employees, as long as the business or business owner is not a beneficiary on the policy
- Business interruption insurance that covers lost profits if your business is shut down due to fire or another cause
5. Legal and Professional Fees
Legal and professional fees that are imperative and directly related to running your business are deductible. Note that these include fees charged by lawyers, accountants, bookkeepers, tax preparers, and online bookkeeping services. If the fees include payments for work of a personal nature – for example, making a will – you can only deduct the part of the fee that is related to the business.
Indeed having separate bank accounts and credit cards for your business is always a good idea. If your bank or Credit Card Company charges annual or monthly service charges, transfer fees, or overdraft fees, these are deductible. Also note that you can deduct merchant or transaction fees paid to a third-party payment processor, such as PayPal or Stripe. You cannot deduct fees related to your personal bank accounts or credit cards.
If you take out a loan or use a credit card to cover business expenses, then have it in mind that you can deduct the interest paid to your lender or Credit Card Company as long as you meet the following requirements:
In the United States, you are legally liable for the debt. For instance, if your parents take a second mortgage on their home to help you start a business, you are not legally liable for the debt. In that case, interest on the loan is not deductible, even if you make all of the payments on the mortgage.
Note that both you and the lender must intend for the debt to be repaid. A loan that doesn’t have to be repaid is a gift. You and the lender have a true debtor/creditor relationship. Have it in mind that the IRS tends to scrutinize loans between related parties, such as family members.
If you use the accrual method of accounting, you cannot deduct interest owed to a related person until the payment is made. Also remember that if a loan is part business and part personal, you need to divide the interest between the business and personal parts of the loan.
Business use of Your Car
If you use your vehicle mainly for business purposes, then you can deduct the entire cost of operating the vehicle. If you use it for both business and personal trips, then you can only deduct the costs associated with business-related usage. However, there are two methods for deducting vehicle expenses, and you can choose whichever one gives you a greater tax benefit.
- Standard mileage rate. Multiply the miles driven for business during the year by a standard mileage rate. For miles driven in 2020, the standard mileage deduction is $0.57½ per mile. in 2023, it is $0.56 per mile.
- Actual expense method. Track all of the costs of operating the vehicle for the year, including gas, oil, repairs, tires, insurance, registration fees, and lease payments. Multiply those expenses by the percentage of miles driven for business.
Note that both methods require that you track your business miles for the year. Ensure to keep a detailed log of your business miles, use an app to track your trips, or reconstruct a mileage log using other documents, such as calendars or appointment books.
If you keep a mileage log, clearly document the miles driven, time and place, and business purpose of your trip. Have it in mind that you cannot count the miles driven while commuting between your home and your regular place of business. These costs are considered personal commuting expenses.
Home Office Expenses
If you use a home office for your business, then you can also deduct a portion of your housing expenses against business income. There are two ways to deduct home office expenses.
- Simplified method. You can deduct $5 per square foot of your home that is used for business, up to a maximum of 300 square feet.
- Standard method. Track all actual expenses of maintaining your homes, such as mortgage interest or rent, utilities, real estate taxes, housekeeping and landscaping service, homeowners’ association fees, and repairs. Multiply these expenses by the percentage of your home devoted to business use.
When you acquire furniture, equipment, and other business assets, depreciation rules mandate you to spread the costs of those assets over the years you’ll use them rather than deducting the full cost in a single hit. Expensing these items upfront is more attractive because of the quicker tax benefit. However, the IRS gives business owners several ways to write off the full cost in one year.
- De minimis safe harbor election. Note that small businesses can elect to expense assets that cost less than $2,500 per item in the year they are purchased. You can read more about the de minimis safe harbor election in this IRS FAQ.
- Section 179 deduction. The Section 179 deduction lets business owners to deduct up to $1,040,000 of property placed in service during the tax year. This includes new and used business property and “off-the-shelf” software. The Section 179 deduction is limited to the business’s taxable income, so claiming it cannot create a net loss on your return. However, any unused Section 179 deduction can be carried forward and deducted on next year’s return.
- Bonus depreciation. Businesses can leverage bonus depreciation to deduct 100% of the cost of machinery, equipment, computers, appliances, and furniture.
If you acquired a new vehicle during the tax year, the IRS limits write-offs for passenger vehicles. In the first year, if you don’t claim bonus depreciation, the maximum depreciation deduction is $10,000. If you do claim bonus depreciation, the maximum write off is $18,000.
Since tax deductions change from year to year, it is in your best interest to hire an accountant who is up-to-speed. Note that they can also let you know what qualifies as an expense and what isn’t. After all, the last thing you want is to get penalized by the IRS. More importantly, they’ll make sure that you aren’t missing out on a potential deduction or credit.