Year-end is rapidly approaching and reviewing expenses is likely on your list of To-Dos. Normally, we don’t see dramatic changes in expenses year-or-year, but this year has been like no other. As you review expenses, there may several areas that may have significantly different numbers this year compared to last year.
Areas where expenses may be significantly lower YOY:
- Mileage/Vehicle Expenses – You will likely have a significant difference in year-over-year mileage as we were under stay-at-home orders for a significant part of the year and many people transitioned to working from home. Client visits and meetings transitioned to calls and video meetings, resulting in less time on the road.
- Travel expenses – with the cancellation of conferences, tradeshows, and in-person meetings, you will likely see a dramatic drop in travel related expenses compared to previous years.
- Meals and Entertainment – as businesses and restaurants were closed and moved to minimal occupancy, lunch meetings and employee events took on a different look with remote meetings and events.
- Marketing – As our world began to change this spring, so did the world of marketing. With the initial closing of non-essential businesses, many companies pulled back on media buying and traditional marketing tactics. As businesses began to re-open in an uncertain environment, many companies were hesitant to resume normal marketing expenditures.
Areas where expenses may be significantly higher YOY:
- Safety Equipment – If your business is like many businesses, Personal Protective Equipment (PPE) was not an expense your business normally incurred. For much of this year, PPE became a necessity to operate your business. In addition to PPE, there are many other COVID safety items such as hand sanitizer, social distancing signs, plexiglass divides, etc.
- Remote Workplace – With a new remote workforce, home offices have become the norm. If you have had to invest in office equipment, webcams, lighting equipment, and conferencing software, such as Zoom, many of these items may be deductible as work expenses. You may also be able to deduct some utilities, including internet and phone expenses.
- Marketing – Marketing likely had a big shift in 2020. While you may have had drops in expenses such as tradeshows, events, and media buys, it is likely that you may have invested your marketing dollars in other areas, such as upgrades to your website to support online purchasing, digital advertising, and activities to increase your online presence.
COVID-19 Relief Impact
If you received a PPP loan or any type of COVID-19 related business loan or grant, it is even more vital that you have a solid tracking of your expenses. Additionally, as of this writing, expenses that were covered by a forgiven PPP loan will not be included in expense deductions. There has been some speculation of legislation that will change this but nothing definitive at this time.
Be sure to meet with your tax accountant to review your strategy and work with your accountant/bookkeeper to ensure all expenses are properly tracked and allocated.
If you need additional information or assistance with managing your year-end processes, contact us at 505-850-3908.