Tax Deductions for small Business Owners

1. Auto Expenses

If you use your car for business, or your business owns its own vehicle, you can deduct some of the costs of keeping it on the road. Learning the rules of car expense deductions can be tricky, but it's worth your while.

There are two methods of claiming expenses:

Actual expense method. You keep track of and deduct all of your actual business-related expenses.
Standard mileage rate method. You deduct a certain amount (the standard mileage rate) for each mile driven, plus all business-related tolls and parking fees. In 2009, the standard mileage rate is 55 cents per business mile driven. The rate was 50.5 cents per mile for the first half of 2008 and 58.5 cents per mile for the second half of the year.

As a rule, if you use a newer car primarily for business, the actual expense method provides a larger deduction at tax time. If you use the actual expense method, you can also deduct depreciation on the vehicle. To qualify for the standard mileage rate, you must use it the first year you use a car for your business activity. Moreover, you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

If your auto is used for both business and pleasure, only the business portion produces a tax deduction. That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year. Certainly, if you own just one car or truck, no IRS auditor will let you get away with claiming that 100% of its use is related to your business.

2. Expenses of Going Into Business

Once you're running a business, expenses such as advertising, utilities, office supplies, and repairs can be deducted as current business expenses, but not before you open your doors for business. The costs of getting a business started are capital expenses, $5,000 of which you may deduct the first year you're in business. Any remainder must be deducted in equal amounts over the next 15 years.

3. Education Expenses

You can deduct education expenses if they are related to your current business, trade, or occupation. The expense must be to maintain or improve skills required in your current business, or be required by an employer or as a legal requirement of your job.

4. Legal and Professional Fees

Fees that you pay to lawyers, tax professionals, or consultants generally can be deducted in the year incurred. However, if the work clearly relates to future years, they must be deducted over the life of the benefit you get from the lawyer or other professional.

Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business.

5. Bad Debts

If someone stiffs your business, the bad debt may or may not be deductible, it depends on the kind of product your business sells.

Goods. If your business sells goods, you can deduct the cost of goods that you sell but aren't paid for.
Services. If, however, your business provides services, no deduction is allowed for time you devoted to a client or customer who doesn't pay.

6. Business Entertaining

If you pick up the tab for entertaining present or prospective customers, you may deduct 50% of the cost if it is either:

directly related to the business and business is discussed at the event -- for example, a catered meeting at your office; or
associated with the business, and the entertainment takes place immediately before or after a business discussion.

Make notes. On the receipt or bill, always make a note of the specific business purpose -- for example, "Lunch with Joyce Slater of Ace Manufacturing Co. to discuss widget contract."

7. Travel

When you travel for business, training, or conventions, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, car rentals, telephone calls, faxes, and tips. You might as well stay at a nice hotel, because travel expenses are 100% deductible. The only exception is eating out.....Only 50% of your meals are tax deductible. Once you get home, your meals are not tax deductible unless you are taking a client along for the purpose of discussing or doing business.

What about combining business and pleasure? It's okay, as long as business is the primary purpose of the trip. However, if you take your family along, you can deduct only your own expenses.

8. New Equipment

Some small businesses can write off the full cost of some assets in the year they buy them, rather than capitalizing them, deducting their cost over a number of years.

You can deduct up to $250,000 of the cost of new equipment or other assets in 2008 (scheduled to go down to $128,000 in 2009). This is subject to a phase-out if you place more than $800,000 of equipment in service in 2008 ($510,000 in 2009). Some assets don't qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative.

9. Interest

If you use credit to finance business purchases, the interest and carrying charges are 100% tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business. Be sure to keep good records that show that the money was used for your business.

10. Moving Expenses

If you move because of your business or job, you may be able to deduct certain moving costs that would otherwise be non-deductible personal living expenses. To qualify, you must have moved in connection with your business (or job, if you're an employee of your own corporation or someone else's business). The new workplace must be at least 50 miles farther from your old home than your old workplace was. (Technically, moving expenses aren't business expenses; there's a special place to list them on your Form 1040 tax return.)

11. Software

As a general rule, software bought for business use must be depreciated over a 36-month period, but there are some important exceptions:

Computer software placed in service from January 1, 2003 to December 31, 2010 is eligible for a Section 179 deduction, which means that 100% of the cost of software can be deducted in the year purchased. Starting in 2011, you will no longer be able to use Section 179 to deduct off-the-shelf software.
When software comes with a computer, and its cost is not separately stated, it's treated as part of the hardware and is depreciated over five years. However, under Section 179, you can write off a whole computer system (including bundled software) in the first year if the total cost is less than a certain amount ($250,000 in 2008; scheduled to go down to $128,000 in 2009). See IRS Publication 946, How to Depreciate Property.

12. Charitable Contributions

If your business is a partnership, a limited liability company, or an S corporation (a corporation that has chosen to be taxed like a partnership), your business can make a charitable contribution and pass the deduction through to you, to claim on your individual tax return. If you own a regular (C) corporation, the corporation can deduct the charitable contributions.

If you've got some old computers or office furniture, giving it to a school or nonprofit organization can yield goodwill plus a tax benefit. However, if the equipment has been fully depreciated (written off), you can't claim a deduction.

13. Taxes

Taxes incurred in operating your business are generally deductible. How and when they are deducted depends on the type of tax:

Sales tax on items you buy for your business's day-to-day operations is deductible as part of the cost of the items; it's not deducted separately. However, tax on a big business asset, such as a car, must be added to the car's cost basis; it isn't deductible entirely in the year the car was bought.
Excise and fuel taxes are separately deductible expenses.
If your business pays employment taxes, the employer's share is deductible as a business expense. Self-employment tax is paid by individuals, not their businesses, and so isn't a business expense.
Federal income tax paid on business income is never deductible. State income tax can be deducted on your federal return as an itemized deduction, not as a business expense.
Real estate tax on property used for business is deductible, along with any special local assessments for repairs or maintenance. If the assessment is for an improvement -- for example, to build a sidewalk -- it isn't immediately deductible; instead, it is deducted over a period of years.

14. Advertising and Promotion

The cost of ordinary advertising of your goods or services, business cards, yellow page ads, and so on are deductible as a current expense. Promotional costs that create business goodwill, for example, sponsoring a little league baseball team, are also deductible as long as there is a connection between the sponsorship and your business. For example, naming the team the "Rogers Auto Repair Rangers" or listing the business name in the program is proof of the promotion effort.

15. Furniture - When your office supplies are more than just pens and paper, you have another tax-cutting opportunity. Office furniture provides a couple of choices. You can either deduct 100 percent of the cost in the year of the purchase or deduct a portion of the expense over seven years (known as depreciation).

16. Postage - Stamps, mailing fees, and post office box rentals associated with your business are tax deductible.

17. Bank Service Fees/Charges - This includes any fees that your bank charges you for operating a checking/savings account, , ATM fees, and credit card fees. This also includes any fees you are charged for accepting credit cards for your business.

18. Business related books and magazines - If you subscribe to an industry related magazine or purchase books related to operating your business, you can deduct them. General magazines and local newspapers do not qualify.

19. Coffee and Beverage Service - Coffee, soft drinks and small snacks that are provided for the office, are tax deductible.

20. Business Association Dues - If you belong to a business association in your industry, you can deduct the fees/dues.

21. Parking, Meters, and Tollways - You can deduct any parking costs that you incurred while you were operating your business as well as tollway fees. Tickets and parking violations are not included.

22. Laundry and Cleaning Expenses for Uniforms - All of your costs for cleaning your work uniforms are tax deductible.

23. Seminars and Trade Shows - Seminars and Trade Show fees that are related to your business are tax deductible.

24. Taxis and Bus Fare - Taxi and Bus fares are deductible if they were incurred while you were on business.

25. Online Computer Services related to business - This includes internet service fees, business website hosting fees, domain names, etc.

26. Telephone calls away from the business - Any business calls that you make while traveling or away from your regular business.

27. Telephone Charges - You can deduct the cost of the business calls that you make for business, from home. When you get your bill each month, circle the business related calls, total them up and keep a copy. At the end of the year, add up the total from all 12 bills and take a 100 deduction.

28. Theft and Casualty losses - Any theft of goods or casualty losses are tax deductible.

29. Commissions - Referral fees or occasional amounts paid to individuals who are not employees or independent contractors may be deductible. This doesn't include commissions paid to your employees.

42. Printing, Copying, and Fax Service - These services are fully tax deductible.

31. Home Office - It must be a space devoted to your business and nothing else. If you try to deduct a room that contains the family computer but also serves as a guest bed room, it wont be allowed by the IRS. However, you can deduct part of the room. You have to measure the work area in the room and divide by the square footage of your home. That percentage is the fraction of your home related business expenses (rent, mortgage, insurance, electricity, etc.) that you can claim.

Examples:

1) If you have a seperate office in your home that is 500 square feet, and you whole house is 3,000 square feet. You simply measure the actual work area and divide by the total square footage of the home. So, in this siutuation, you can deduct 17% of your rent, mortgage, insurance, electricity, etc as home office related business expenses.

2) Lets say you use your guest bedroom as an office also. The office/guest bedroom is 500 square feet. The square footage in the room that you actually use as an office is 250 square feet. The total square footage of the house is 3,000. You simply measure the actual work area and divide by the total square footage of the home. So in this situation, you can deduct 8% of your rent, mortgage, insurance, electricity, etc. as home office related business expenses.

32. Office Supplies - Even if you don't take the Home Office Deduction (listed above), you can still deduct the business supplies that you buy, so keep all of your receipts.

Tax Tips

Tax Reduction Toolkit How to survive an IRS audit Click Here to Visit our Business Classifieds...... Buy and Sell New and Used Business Equipment for your new Business This page was updated on: 09/05/2011 Sign up for the American Business Builder Newsletter Get updates on hot new business and money making opportunities Name: Email: We respect your email privacy	Tax Deductions for Small Businesses Below is a list of tax deductions that you can take for your business expenses. Make sure you keep all of your receipts and keep good records. By taking advantage of all of the possible tax deductions, you will be putting much more money into your pocket at the end of the year. Every successful business owner takes full advantage of tax deductions. 1. Auto Expenses If you use your car for business, or your business owns its own vehicle, you can deduct some of the costs of keeping it on the road. Learning the rules of car expense deductions can be tricky, but it's worth your while. There are two methods of claiming expenses: Actual expense method. You keep track of and deduct all of your actual business-related expenses. Standard mileage rate method. You deduct a certain amount (the standard mileage rate) for each mile driven, plus all business-related tolls and parking fees. In 2009, the standard mileage rate is 55 cents per business mile driven. The rate was 50.5 cents per mile for the first half of 2008 and 58.5 cents per mile for the second half of the year. As a rule, if you use a newer car primarily for business, the actual expense method provides a larger deduction at tax time. If you use the actual expense method, you can also deduct depreciation on the vehicle. To qualify for the standard mileage rate, you must use it the first year you use a car for your business activity. Moreover, you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle. If your auto is used for both business and pleasure, only the business portion produces a tax deduction. That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year. Certainly, if you own just one car or truck, no IRS auditor will let you get away with claiming that 100% of its use is related to your business. 2. Expenses of Going Into Business Once you're running a business, expenses such as advertising, utilities, office supplies, and repairs can be deducted as current business expenses, but not before you open your doors for business. The costs of getting a business started are capital expenses, $5,000 of which you may deduct the first year you're in business. Any remainder must be deducted in equal amounts over the next 15 years. 3. Education Expenses You can deduct education expenses if they are related to your current business, trade, or occupation. The expense must be to maintain or improve skills required in your current business, or be required by an employer or as a legal requirement of your job. 4. Legal and Professional Fees Fees that you pay to lawyers, tax professionals, or consultants generally can be deducted in the year incurred. However, if the work clearly relates to future years, they must be deducted over the life of the benefit you get from the lawyer or other professional. Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business. 5. Bad Debts If someone stiffs your business, the bad debt may or may not be deductible, it depends on the kind of product your business sells. Goods. If your business sells goods, you can deduct the cost of goods that you sell but aren't paid for. Services. If, however, your business provides services, no deduction is allowed for time you devoted to a client or customer who doesn't pay. 6. Business Entertaining If you pick up the tab for entertaining present or prospective customers, you may deduct 50% of the cost if it is either: directly related to the business and business is discussed at the event -- for example, a catered meeting at your office; or associated with the business, and the entertainment takes place immediately before or after a business discussion. Make notes. On the receipt or bill, always make a note of the specific business purpose -- for example, "Lunch with Joyce Slater of Ace Manufacturing Co. to discuss widget contract." 7. Travel When you travel for business, training, or conventions, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, car rentals, telephone calls, faxes, and tips. You might as well stay at a nice hotel, because travel expenses are 100% deductible. The only exception is eating out.....Only 50% of your meals are tax deductible. Once you get home, your meals are not tax deductible unless you are taking a client along for the purpose of discussing or doing business. What about combining business and pleasure? It's okay, as long as business is the primary purpose of the trip. However, if you take your family along, you can deduct only your own expenses. 8. New Equipment Some small businesses can write off the full cost of some assets in the year they buy them, rather than capitalizing them, deducting their cost over a number of years. You can deduct up to $250,000 of the cost of new equipment or other assets in 2008 (scheduled to go down to $128,000 in 2009). This is subject to a phase-out if you place more than $800,000 of equipment in service in 2008 ($510,000 in 2009). Some assets don't qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative. 9. Interest If you use credit to finance business purchases, the interest and carrying charges are 100% tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business. Be sure to keep good records that show that the money was used for your business. 10. Moving Expenses If you move because of your business or job, you may be able to deduct certain moving costs that would otherwise be non-deductible personal living expenses. To qualify, you must have moved in connection with your business (or job, if you're an employee of your own corporation or someone else's business). The new workplace must be at least 50 miles farther from your old home than your old workplace was. (Technically, moving expenses aren't business expenses; there's a special place to list them on your Form 1040 tax return.) 11. Software As a general rule, software bought for business use must be depreciated over a 36-month period, but there are some important exceptions: Computer software placed in service from January 1, 2003 to December 31, 2010 is eligible for a Section 179 deduction, which means that 100% of the cost of software can be deducted in the year purchased. Starting in 2011, you will no longer be able to use Section 179 to deduct off-the-shelf software. When software comes with a computer, and its cost is not separately stated, it's treated as part of the hardware and is depreciated over five years. However, under Section 179, you can write off a whole computer system (including bundled software) in the first year if the total cost is less than a certain amount ($250,000 in 2008; scheduled to go down to $128,000 in 2009). See IRS Publication 946, How to Depreciate Property. 12. Charitable Contributions If your business is a partnership, a limited liability company, or an S corporation (a corporation that has chosen to be taxed like a partnership), your business can make a charitable contribution and pass the deduction through to you, to claim on your individual tax return. If you own a regular (C) corporation, the corporation can deduct the charitable contributions. If you've got some old computers or office furniture, giving it to a school or nonprofit organization can yield goodwill plus a tax benefit. However, if the equipment has been fully depreciated (written off), you can't claim a deduction. 13. Taxes Taxes incurred in operating your business are generally deductible. How and when they are deducted depends on the type of tax: Sales tax on items you buy for your business's day-to-day operations is deductible as part of the cost of the items; it's not deducted separately. However, tax on a big business asset, such as a car, must be added to the car's cost basis; it isn't deductible entirely in the year the car was bought. Excise and fuel taxes are separately deductible expenses. If your business pays employment taxes, the employer's share is deductible as a business expense. Self-employment tax is paid by individuals, not their businesses, and so isn't a business expense. Federal income tax paid on business income is never deductible. State income tax can be deducted on your federal return as an itemized deduction, not as a business expense. Real estate tax on property used for business is deductible, along with any special local assessments for repairs or maintenance. If the assessment is for an improvement -- for example, to build a sidewalk -- it isn't immediately deductible; instead, it is deducted over a period of years. 14. Advertising and Promotion The cost of ordinary advertising of your goods or services, business cards, yellow page ads, and so on are deductible as a current expense. Promotional costs that create business goodwill, for example, sponsoring a little league baseball team, are also deductible as long as there is a connection between the sponsorship and your business. For example, naming the team the "Rogers Auto Repair Rangers" or listing the business name in the program is proof of the promotion effort. 15. Furniture - When your office supplies are more than just pens and paper, you have another tax-cutting opportunity. Office furniture provides a couple of choices. You can either deduct 100 percent of the cost in the year of the purchase or deduct a portion of the expense over seven years (known as depreciation). 16. Postage - Stamps, mailing fees, and post office box rentals associated with your business are tax deductible. 17. Bank Service Fees/Charges - This includes any fees that your bank charges you for operating a checking/savings account, , ATM fees, and credit card fees. This also includes any fees you are charged for accepting credit cards for your business. 18. Business related books and magazines - If you subscribe to an industry related magazine or purchase books related to operating your business, you can deduct them. General magazines and local newspapers do not qualify. 19. Coffee and Beverage Service - Coffee, soft drinks and small snacks that are provided for the office, are tax deductible. 20. Business Association Dues - If you belong to a business association in your industry, you can deduct the fees/dues. 21. Parking, Meters, and Tollways - You can deduct any parking costs that you incurred while you were operating your business as well as tollway fees. Tickets and parking violations are not included. 22. Laundry and Cleaning Expenses for Uniforms - All of your costs for cleaning your work uniforms are tax deductible. 23. Seminars and Trade Shows - Seminars and Trade Show fees that are related to your business are tax deductible. 24. Taxis and Bus Fare - Taxi and Bus fares are deductible if they were incurred while you were on business. 25. Online Computer Services related to business - This includes internet service fees, business website hosting fees, domain names, etc. 26. Telephone calls away from the business - Any business calls that you make while traveling or away from your regular business. 27. Telephone Charges - You can deduct the cost of the business calls that you make for business, from home. When you get your bill each month, circle the business related calls, total them up and keep a copy. At the end of the year, add up the total from all 12 bills and take a 100 deduction. 28. Theft and Casualty losses - Any theft of goods or casualty losses are tax deductible. 29. Commissions - Referral fees or occasional amounts paid to individuals who are not employees or independent contractors may be deductible. This doesn't include commissions paid to your employees. 42. Printing, Copying, and Fax Service - These services are fully tax deductible. 31. Home Office - It must be a space devoted to your business and nothing else. If you try to deduct a room that contains the family computer but also serves as a guest bed room, it wont be allowed by the IRS. However, you can deduct part of the room. You have to measure the work area in the room and divide by the square footage of your home. That percentage is the fraction of your home related business expenses (rent, mortgage, insurance, electricity, etc.) that you can claim. Examples: 1) If you have a seperate office in your home that is 500 square feet, and you whole house is 3,000 square feet. You simply measure the actual work area and divide by the total square footage of the home. So, in this siutuation, you can deduct 17% of your rent, mortgage, insurance, electricity, etc as home office related business expenses. 2) Lets say you use your guest bedroom as an office also. The office/guest bedroom is 500 square feet. The square footage in the room that you actually use as an office is 250 square feet. The total square footage of the house is 3,000. You simply measure the actual work area and divide by the total square footage of the home. So in this situation, you can deduct 8% of your rent, mortgage, insurance, electricity, etc. as home office related business expenses. 32. Office Supplies - Even if you don't take the Home Office Deduction (listed above), you can still deduct the business supplies that you buy, so keep all of your receipts. 33. Other Equipment - Items such as computers, copiers, fax machines and scanners are also tax deductible. You can take a 100% deduction the first year, or depreciate it over a five year period. 34. Insurance Premiums - If you are self-employed and pay for your own health benefits, it is 100% deductible. The deduction can't be more than your business' net profit. Also, it's not allowed if you were eligible for other health care coverage, including that offered by your employed spouse's medical plan. 35. Retirement Benefits - Are you self employed and putting away money for retirement with a Keogh or SEP/IRA account? Make sure you deduct your contribution on your personal income tax return. 36. Business Gifts - Up to $25 per person, per year is allowable. 37. Utilities - This includes charges for electricity, gas, telephone, water, and sewer on business property. The cost of the basic local telephone service for the first phone line in the house is not tax deductible. The cost of an additional line, which is added for business, is deductible, as well as any long distance charges or fees incurred by the small business. If you use your cell phone for business more than 50% of the time, you can deduct the costs of your cell phone also. For example, if your cell phone is used for 70% business use and 30% personal use, you can deduct 70% of you costs. 38. Contract Labor - Payments that are paid to independent contractors (non-employees) for services rendered are deductible. 39. Employment Benefit Programs - Contributions to employee benefit programs include those to education, recreation, health, and welfare programs. 40. Repairs and Maintenance - This includes amounts necessary to maintain property in an ordinary, efficient operating condition, such as labor, supplies, the yearly portion of the cost of service contracts, and other items that are part of the repair. 41. Cleaning and Janitorial Services - If you pay to have your business office cleaned, it is deductible. 42. Company Parties - You can deduct the entire cost of a party if all employees are invited. Other business parties or events that are thrown to promote the business are considered entertainment. You can deduct 50% of the cost of those parties. 43. Disabled Access - You can recieve credits and deductions for making your business accessible to people with disabilities. Check with the IRS for their current guidelines. 44. Garbage Pickup - If you have to pay to get your garbage hauled away, you can deduct those expenses. 45. Holiday Greeting Cards - If you send holiday greeting cards to clients or prospects, they are tax deductible. 46. Lists - If you buy email lists, phone lists, or mailing lists, they are tax deductible. 47. Shipping and Handling - If you pay for customers shipping and handling on the goods that you sell to them, these costs are tax deductible. * Tax Laws and Regulations change quite often. Please check with the IRS for recent changes and current guidelines. Tax Software - For a quick and easy way to do your taxes online, click here: Get a Quick Refund with CompleteTax!
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