When buying a franchise, you’re essentially paying the franchisor to use their proven brand and business model. This is a huge advantage for you since you’ll be given a detailed business plan and information about how to set up the franchise and run it.
As these fees could be substantial, it’s crucial that you account for them accurately, especially if you want to reduce your tax bill, advises a franchise specialist from top franchise consulting companies in the area.
In general, the following are considered deductible expenses for owning a franchise business:
Initial Franchise Fees
While you could deduct initial fees, as per IRS rules, you need to amortize these startup costs over a period of 15 years instead of in one go. Note that this includes expenses for training your employees as well.
If you pay ongoing franchise fees, you could also deduce these. Note that this includes royalties and advertising fees.
Administrative and Operational Expenses
All costs you incur while operating the franchise, such as salaries, rent, equipment, and supplies, are general expenses that you could deduct when tax time comes.
Home Office Benefit
If you use your home as your office while operating your franchise, you might be eligible for this deduction. Generally speaking, you could assign a certain space of your primary residence as your home office and calculate the deduction according to how much you pay for rent or mortgage each month.
If you travel for business, like to meet clients or attend trade shows or conferences, you could write them off as travel expenses. Basically, you could deduct 100% of your accommodation and transportation costs and 50% of your food costs.
You could likewise deduct the miles you subject on vehicles you use for your business. The IRS sets a standard mileage rate for every mile, so you need to monitor your mileage as accurately as you can to benefit from this deduction.
A majority of the benefits you pay for your employees are deductible, including health insurance and retirement plans. It’s best that you consult your accountant, though, because IRS policies are always changing.
Now that you know the basic franchise expenses you could deduct this tax season, it’s immensely vital that you keep accurate records. If you have no proof of these qualified deductibles, you won’t be able to claim them otherwise. For best results, you should also consider checking in with your accountant to make sure that you take advantage of all the tax benefits available to you.