How to Create a Tax Deduction Checklist for Your Startup

Posted on October 11, 2024.

As a startup founder, keeping track of your tax deductions can save you significant money and reduce stress come tax season. However, with so many potential deductions, it’s easy to overlook important ones if you don’t stay organized. A tax deduction checklist is a powerful tool that helps you systematically track and categorize your expenses, ensuring you don’t leave money on the table.

In this guide, we’ll walk you through how to create a tax deduction checklist tailored for your startup. Plus, we’ll provide a downloadable template you can use to stay organized year-round.

A tax deduction checklist ensures you:

• Maximize Savings: You’ll never forget to claim a deduction, saving you money.
• Stay Organized: Track every expense throughout the year, making tax season easier.
• Remain Audit-Proof: Properly categorize and document each deduction, providing clear records if the IRS comes knocking.

Let’s dive into the steps to build a comprehensive tax deduction checklist for your startup.

Start with Basic Expense Categories

The first step in building your checklist is identifying the common expense categories most startups can deduct. Every expense should fall under one of these categories to make it easier to track and claim.

Here’s a list of key categories you should include in your checklist:

Office Expenses:Office supplies (pens, paper, printer ink)
Furniture (chairs, desks, bookshelves)
Software and technology subscriptions (accounting tools, CRMs)

Marketing and Advertising:Website development and hosting costs
Social media ads
Promotional materials (business cards, flyers)

Travel Expenses:Flights, hotel stays, and taxis for business trips
Business-related meals and entertainment
Mileage if driving your own car for business purposes

Utilities (if you work from home or rent office space):Internet
Electricity
Water and garbage

Startup Costs:Legal fees for incorporation
Market research expenses
Professional services (accounting, consultants)

Employee and Contractor Payments:Salaries and wages
Benefits and insurance premiums
Freelancer and contractor payments

Pro Tip: Use an app or spreadsheet to record expenses under these categories in real-time. This saves you from scrambling to gather receipts and documents when tax season arrives.

Track Your Home Office Expenses

If you run your startup from a home office, the IRS allows you to deduct a portion of your home-related expenses. To claim this deduction, you need to calculate what percentage of your home is used exclusively for business.

Add these expenses to your checklist:

• Rent or mortgage interest
• Utilities (internet, electricity, water)
• Home office furniture
• Maintenance or repairs related to your workspace

Pro Tip: To calculate the percentage of your home you use for your business, divide the square footage of your office space by the total square footage of your home. Your tax deduction will be based on this percentage.

Don’t Forget Startup and Organizational Costs

Startup costs can be deducted up to $5,000 in your first year, with the remaining expenses amortized over 15 years. These are often overlooked, so include these items in your checklist to maximize your savings:

• Incorporation fees (LLC, S-Corp, etc.)
• Licensing and permits
• Marketing research and surveys
• Professional fees (legal and accounting)
• Advertising before the official launch

Pro Tip: Keep a folder (digital or physical) where you store receipts and documentation of every startup-related expense, especially during your first year.

Log Business Meals and Entertainment

Business meals are 50% deductible as long as they involve conducting business with clients, partners, or employees. Entertainment used to be deductible but was largely eliminated under the Tax Cuts and Jobs Act. However, meals and certain employee perks, such as team outings or holiday parties, are still deductible.

Add these to your checklist:

• Client meals
• Employee meals during travel
• Meals at conferences and networking events

Pro Tip: Whenever you log a business meal, make sure to include details like the names of attendees and the business purpose to provide clear documentation if ever questioned by the IRS.

Track Business-Related Travel and Mileage

If your startup requires you or your employees to travel, those expenses are deductible. This includes transportation, lodging, meals, and even a portion of the costs if you combine business and personal travel.

Here’s what to add to your checklist:

• Airfare and other transportation costs (Uber, Lyft, taxi rides)
• Hotel stays and lodging
• Conference fees or event registration
• Rental cars and fuel
• Mileage if you drive your own vehicle for business purposes

Pro Tip: Use a mileage tracking app or log miles driven for business in your deduction app. This simplifies claiming mileage deductions, which can add up quickly.

Include Employee and Contractor Costs

As a startup founder, your payroll and contractor payments are some of your largest expenses, and they’re fully deductible. Here are some items to include in your checklist under this category:

• Salaries and wages
• Payroll taxes
• Benefits (health insurance, retirement contributions)
• Contractor and freelancer payments
• Training and professional development costs

Pro Tip: Keep detailed records of payments made to employees and contractors, along with any benefits offered. Include invoices and payroll reports to ensure you can claim these deductions accurately.

Monitor Equipment and Depreciation

If your startup invests in equipment like computers, printers, or specialized tools, these are deductible. Larger purchases may need to be depreciated over several years, but Section 179 allows you to deduct the full cost of qualifying equipment in the year it’s purchased.

Include these items in your checklist:

• Laptops, computers, and software
• Office furniture
• Manufacturing or production equipment
• Tools and machinery

Pro Tip: Track the purchase date, cost, and depreciation schedule (if applicable) for all major equipment. Your deduction app can help automate this process, making it easier to calculate.

Take Advantage of Business Insurance Deductions

Any insurance you carry to protect your business is deductible. This includes general liability, professional liability, property insurance, and even worker’s compensation insurance for your employees.

Add these to your checklist:

• Business liability insurance
• Property insurance for office or equipment
• Professional liability (errors and omissions)
• Health insurance premiums for employees

Pro Tip: Keep copies of your insurance policies and payment records in one place so you can quickly reference them when tax season approaches.

To make things easier, we’ve created a Tax Deduction Checklist Template that you can download and customize for your startup. This checklist is designed to help you stay organized throughout the year and ensure you never miss a deduction.

[Download Your Tax Deduction Checklist Template Here] Creating and using a tax deduction checklist is a smart move for any startup founder. It ensures you stay organized, track all eligible expenses, and maximize your deductions. By using a tax deduction app alongside your checklist, you can automate the process, reducing the risk of missed deductions and simplifying tax season.

Whether you're just starting out or already running a growing business, this checklist will keep your tax preparation on track. For more tools and resources like this, consider subscribing to our newsletter or checking out our other downloadable templates. Together, we’ll make tax season a breeze!