One thing every small business should avoid at all costs is messing with the IRS. With that being said, don’t be afraid to deduct what you legally can – don’t cheat yourself. The following twelve deductions are some that you might not have known or thought about before. All it takes is a little documentation throughout the year.
Home Office – Many small business owners are afraid to claim a home-office deduction because they believe this is just asking for the IRS to investigate. While the chances are greater when making this deduction, the key is to use the term “home office” in the same way that the IRS does. The space must be devoted to your business and nothing else. You simply measure your work area and divide that space by the square footage of your home. This allows you to then claim the fraction of that percentage of your home related business expenses; such as, electricity, insurance, rent, etc.
Office Supplies – Even if you don’t feel comfortable enough to deduct your home-office, you can at least deduct your office supplies. Just make sure that you keep your receipts. Deducting your office supplies will give you an opportunity to offset your taxable business income.
Telephone Charges – You are allowed to deduct the cost of any business calls that you make from your home-office. When you receive your bill, simply circle any business-related calls, total them all and keep a copy.
Software and Subscriptions – Computer software purchased for a business can now be fully expensed in the year that it was purchased. In addition, any business and industry-related magazine subscriptions can be fully deducted in that same year.
Furniture – When deducting office-furniture acquisitions, you have several choices. (1) You can deduct 100 percent of the cost the year that the furniture was purchased. (2) Or, you can deduct a portion of the expense over a span of seven years (depreciation). Deciding what the best option is depends on the needs of your business – anticipate the times that your business might need these deductions the most.
Other Equipment – Just like your office furniture, computers, copiers fax machines, scanners and other equipment items are also tax deductible. They too can be deducted either upfront or depreciated over time (five years).
Mileage – Do you do any driving that is business related? In order to deduct your mileage, keep a notebook in your vehicle and record the date, the mileage, any tolls, parking costs along with the purpose of your trip. If you are leasing your vehicle, be sure that you also include those payments. When purchasing a vehicle, factor the interest on your loan along with the depreciation of the vehicle. Don’t forget to also record gas, repairs and insurance.
Travel and Meals – If you need to stay at a hotel during your business related travel, don’t be afraid to stay at a nice hotel. Hotels are 100 percent deductible. Likewise, the cost of air, rail or auto travel is 100 percent deductible. When eating out, on the other hand, you can only deduct 50 percent of your meals. (Keep in mind this does not include your on-the-job meals which are not deductible.)
Insurance Premiums – In operating your own small business, you are more than likely paying your own premiums. You will be glad to hear that these are 100 percent deductible.
Retirement Contribution – When self-employed and saving for your own retirement with a SEP, IRA or Keogh, you can deduct your contribution on your personal income tax return.
Social Security – Unfortunately, when self-employed or when starting your own business, you end up paying double the Social Security contributions you would as an employee. Why? Federal law requires the employer to pay half and the employee to pay half. Fortunately, you can deduct 50 percent of the contribution on your 1040.
Child Labor – When employing your children, they may be able to avoid income taxes depending on how much they earn. In addition, when a child is seventeen or younger, you can deduct their salary as a business expense; there is also no Social Security tax. Keep in mind this tax break is only available if you operate as either a partnership or as a sole proprietor.
Are you looking to start your own business and are interested in more than just small business tax deductions? While saving money is a great way to contribute towards growing your business, you will also need funds to get started. If you struggle with a bad personal credit history, finding this funding is going to be extremely difficult.
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