You know all too well that it takes money to make money. Running a home care agency is no exception.
Fortunately, there are several tax deductions that can help you save money on your tax bill.
Unfortunately, many home care agency owners miss out on some of these deductions simply because they aren’t aware of them.
Let’s talk about eight tax deductions that home care agency owners often miss.
1. Home Office Deduction
If you use part of your home exclusively and regularly for your home care agency business, you may be eligible for the home office deduction. This deduction allows you to deduct a portion of your home expenses, such as mortgage interest, property taxes, utilities, and home insurance, based on the percentage of your home that is used for business purposes.
To qualify for the home office deduction, you must use the space exclusively and regularly for your business and it must be your principal place of business. In addition, the space must be used for administrative or management activities, and you cannot have another fixed location where you conduct substantial administrative or management activities. Be sure to report home office expenses accurately, as this is a deduction known to be scrutinized by the IRS. Additionally, be aware that there may be tax consequences when you sell your home.
2. Mileage Deduction
If you use your personal vehicle for business purposes, you can deduct the mileage on your tax return. For 2022, the standard mileage rate for business use of a car was 62.5 cents per mile. This deduction can add up quickly, especially if you have multiple caregivers who travel to clients’ homes.
To qualify for the mileage deduction, you must keep accurate records of your business-related mileage. This includes the date, destination, purpose of the trip, and the number of miles driven. You can keep track of your mileage manually or use a mileage tracking app.
3. Health Insurance Deduction
If you provide health insurance for your employees, you may be eligible for a tax deduction. As a home care agency owner, you can deduct 100% of the cost of health insurance premiums for yourself and your employees.
To qualify for the health insurance deduction, you must be self-employed and not eligible for health insurance coverage through another employer. In addition, the health insurance plan must be established under your business, and you cannot claim the deduction if you are eligible to participate in a subsidized health plan through your spouse’s employer.
4. Depreciation Deduction
If you purchase equipment or vehicles for your home care agency, you can take advantage of the depreciation deduction. Depreciation allows you to deduct a portion of the cost of the asset over several years, rather than all at once.
To qualify for the depreciation deduction, the asset must be used in your business, have a useful life of more than one year, and be expected to last longer than a year. The depreciation deduction can be complicated, so it’s best to consult with a tax professional to ensure you’re taking advantage of this deduction properly.
5. Startup Costs Deduction
If you’ve recently started your home care agency, you may be able to deduct some of the expenses incurred during the startup phase. These expenses can include legal and accounting fees, marketing and advertising costs, and equipment purchases.
To qualify for the startup costs deduction, your business must be newly established, and you must have incurred expenses before the business began operating. You can deduct up to $5,000 in startup costs in your first year of business. If your startup costs exceed $5,000, you can amortize the remaining expenses over a period of 15 years.
6. Advertising Expenses
The IRS allows for a deduction of advertising expenses, including any costs associated with creating and distributing promotional materials such as brochures, business cards, and flyers.
This can also include any costs associated with digital advertising, such as Facebook ads or Google AdWords.
If you use an agency to create and distribute your promotional materials or run your digital ads, those costs are deductible as well.
7. Payroll Taxes
As an employer, you are responsible for paying payroll taxes on behalf of your employees, including Social Security and Medicare taxes, federal and state unemployment taxes, and state and local income taxes.
These taxes can add up quickly and take a significant chunk out of your profits, but the good news is that they are all tax deductible. This can include not only the taxes you pay on behalf of your employees but also any penalties or interest you may be assessed if you fail to pay on time or accurately.
8. Legal and Professional Fees
If you hire an attorney, accountant, or other professional to help you with your business, you may be able to deduct their fees as a business expense. This can include anything from the cost of hiring a lawyer to review contracts or advise you on compliance issues to the fees you pay an accountant to prepare your taxes or help you with bookkeeping.
Just be sure to keep careful records of all the fees you pay and the services you receive, as you will need to document these expenses if you are audited by the IRS.
Owning a home care agency can be a rewarding but challenging experience, especially when it comes to managing your finances. By taking advantage of these often-overlooked tax deductions, you can help reduce your tax bill and keep more money in your pocket. Just be sure to keep accurate records of all your expenses and consult with a tax professional to ensure you are claiming everything you are entitled to.
For more financial resources check out:
- Financial statement template downloads for home care agencies
- LLC vs S-Corp for home care agencies
- How to get agency management software for free
Please note that this article does not serve as professional tax advice and all business owners should consult with a tax professional before making decisions regarding their business taxes.
About Connor Kunz, Head of Growth, Careswitch
Before coming to Careswitch, Connor ran two service businesses, growing their profits by seven figures in less than three years. He also worked as head of marketing and education at Home Care Pulse, where he led the Home Care Benchmarking Study, founded the Home Care Growth Summit, and launched Home Care TV.