In Business / February 2008
Small Business Tax Deductions
It is time to start preparing your business and personal taxes. Every year it gets harder and harder for the average small business owner to keep track of allowable business deductions while trying to run a successful business.
As a small business owner, it is your responsibility to provide all the documentation necessary for deductions.
When preparing your information for your accountant, it sometimes is much easier to see a list of potential deductions that you can go through quickly to jog your memory about potential deductions for the tax year. Below is a general list of small business tax deductions you may use as reminders when preparing your tax deduction information for your accountant.
These potential tax deductions should be discussed with your individual accountant as your individual circumstances make a difference about what is considered allowable deductions for your small business.
Remember, your accountant can only use the materials you give him/her. It is like the old saying “garbage in – garbage out”. Give your accountant the information and documentation that allows him/her to get you the maximum tax deductions possible. Keep in mind – you do not pay taxes on business deductions! So, your goal is to get as many deductions as you can! Your accountant is there to help you.
Education
In general, deductions for education are 100% deductible as long as the education is relevant to your business. Examples: conferences, seminars, books, e-book downloads, business coaching, etc.
Equipment
Business equipment is 100% deductible. Examples: Copiers, fax machine, scanners, answering machine, calculator, cell phone, beeper, phone system, rolodex, address book, PDA’s, safe, camera, GPS, digital projector, hand held tape recording device, etc.
Furniture
Office-furniture can be deducted in either of two ways. (1) Deduct 100 % of the cost in the year of the purchase or (2) deduct a portion of the expense over seven years, i.e., depreciation. Examples: Chair, desk, bookshelf, filing cabinet, paintings, wall pictures, armoires, chair mats, rugs, office cubicles, lamps, office décor, plants, shelving, tables, etc.
Miscellaneous Business Expenses
The following general business expenses are 100% deductible. Examples: accountant fees, marketing expenses, consulting expenses, business cards, letterhead, envelopes, trade show booth, trade show materials, promotional materials, bank service charges, general repairs and maintenance, snow removal, lawn care, etc.
Gifts
Client gifts are 100% deductible up to $25 per client. Example: Client holiday gift, client business anniversary gift, client award gift, etc.
Hardware & Software
Hardware and software are 100% deductible. It can either be expensed or depreciated. Please check with your account regarding the best way to show this for your business. Examples: monitor, printer, keyboard, speakers, MS Office software, trade software, billing software (Quicken or Quick Books), scanner, shredder,
Health Insurance premiums
Health Care insurance premiums are 100% deductible. Please remember to keep an accurate record of your payments.
Office (Small or Home)
The home office deduction is available to renters and homeowners. It is available for office space and other areas you use for business in your home -- such as a studio, workshop, or garage. You must meet two tax law requirements to qualify for the home office deduction: (1) you must regularly use part of your home exclusively for a trade or business and (2) you must also be able to show that you use your home as your principal place of business.
Your home office can even be part of a room. Measure your work area and divide by the square footage of your entire home and use that percentage as the fraction of your home-related business expenses – rent, mortgage, insurance, electricity, etc., that you can claim.
Insurance
Insurances used exclusively to protect your business or equipment is 100% deductible. Example: Business liability insurance, bonding insurance, director & officers professional insurance, errors & omissions insurance, etc.
Leasing a Vehicle
If you lease a vehicle through your small business, the monthly leasing payments are 100% deductible.
Meals & Entertainment
You can deduct only 50% your business meals. Remember to keep your meal receipt and make sure the receipt and handwrite a note on the receipt that says who you were having the business meeting with and what the meeting was about. For entertainment deductions, the entertainment must be within a “clear business setting” (such as at a conference) or should immediately precede or follow a business meeting. Entertainment deductions can be tricky, so please discuss them with your accountant.
Mileage
For your 2007 taxes, the IRS standard mileage rate was 48.5 cents per mile (for business travel only). The new standard mileage rates for 2008 increased to 50.5¢ per mile (for business travel only).
For business travel, if you are required to stay overnight in a hotel, the cost of the hotel is 100% deductible. Likewise, the cost of plane or vehicle travel is 100 percent deductible, as are costs associated cost while traveling for business. Examples: dry cleaning, rental cars, tolls, tips, parking fees, etc.
Office Supplies
Office supplies are 100% deductible. Examples: Day planner, calendar, pencils, pens, tape, paper clips, notebooks, notebook paper, copy paper, clock, manila folders, hanging folders, stapler, staples, highlighters, business cards, white out, mailing envelopes, mailing labels, postage, scissors, post it notes, erasers, address book, bathroom supplies, cleaning supplies, keys, easels, envelopes, batteries, ink/toner, memory boards, light bulbs, bookends, etc.
Start-up Costs
If you are a new business, you can deduct up to $5,000 in start-up and $5,000 in organizational costs for the first year of business. Expenses that are not deducted can be amortized over a 6 month period, which begins when you open your business. Examples: market research, advertising, employee training, business-related travel, legal fees, etc.
Subscriptions & Dues
Subscriptions and dues that relate directly to your business are 100% deductible. Examples: trade journals, Sam’s Club membership, trade dues, business membership dues, professional dues, etc.
Utilities
Utilities that are used exclusively for your small business are 100 % deductible. Examples: telephone, cell phone, phone cards, electric, gas, internet cable, DSL, answering service, trash removal, water, etc.
If you are using your home as your office, then you can deduct the percentage of your office space in comparison to your entire home. Example: If your home office is 15% of your total housing space, then you can deduct 15% of the home’s utilities. Examples: gas, electric, water, trash service, etc.
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