Making sure you account for every single legitimate tax deduction can save your small business a ton of money. It just takes the time to look into all of the tax laws with the IRS to know which deductions are Ok and which ones are not.
Just make sure to not overlook these legitimate tax deductions this tax season:
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. Mastering the rules of car expense deductions can be tricky, but well worth your while.
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, and you may deduct $5,000 the first year you're in business; any remainder must be deducted in equal amounts over the next 15 years.
3. Books and Legal and Professional Fees – Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business. 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.
4. 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.
5. 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.
6. Travel – When you travel for business, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, telephone calls, faxes, and tips.
7. Interest – If you use credit to finance business purchases, the interest and carrying charges are fully 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 demonstrating that the money was used for your business.
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.
9. 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.)
10. Software – As a general rule, software bought for business use must be depreciated over a 36-month period, but there are some important exceptions.
11. 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.
12. Taxes – Taxes incurred in operating your business are generally deductible. How and when they are deducted depends on the type of tax.
13. 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 present employment. (The cost of education that qualifies you for a new job isn't deductible.)
14. Advertising and Promotion – The cost of ordinary advertising of your goods or services — business cards, yellow page ads, and so on — is deductible as a current expense. Promotional costs that create business goodwill — for example, sponsoring a peewee football team — are also deductible as long as there is a clear connection between the sponsorship and your business. For example, naming the team the “Southwest Auto Parts Blues” or listing the business name in the program is evidence of the promotion effort.
These 14 big tax deductions do not cover the day to day expenses that you can easily write off with or without a receipt.
Can you add some great tips below on other tax deductions first time small business owners may not know about?
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