What makes the U.S. tax code so complex isn’t the taxesthemselves–it’s the allowed deductions. There’s a wide variety ofdeductions you can use to reduce the taxes you’ll pay as yourbusiness grows. You’d be foolish not to take advantage of as manyof them as you legally can. Here are some of the more important taxdeductions your growing business may quality for:
Equipment purchases. If you buy equipment for yourbusiness, you can deduct a portion of the cost of that equipment inthe year you placed the equipment in service. Under current law,the deduction can’t exceed the taxable income derived from yourbusiness. There is also an absolute limit to the deduction forequipment purchase. Check with your tax professional to find outthe limit for the current year.
Business expenses. Common expenses for running a businessfor which you can take a deduction include advertising, employeebenefits, insurance, legal and professional services, telephone andutilities, rent, office supplies, wages, dues to professionalassociations, and subscriptions to business publications.
Auto expenses. For a car you own and use in yourbusiness, the IRS allows you to either deduct your actualbusiness-related expenses or claim the standard mileage rate, whichis a specified amount of money you can deduct for each businessmile you drive. The IRS generally adjusts the rate each year. Tocalculate your deduction, multiply your business miles by thestandard mileage rate for the year. For tax purposes, be sure tokeep a log of your business miles, as well as the costs ofbusiness-related parking fees and tolls because you can deductthese expenses, too.
With the actual cost method of tracking expenses, the IRS allowsyou to deduct various other auto expenses, including depreciation,gas, insurance, cleaning, leasing fees, routine maintenance, tiresand personal property taxes. If you use this method, keep recordsof your car’s costs during the year and multiply those expenses bythe percentage of total car mileage driven for businesspurposes.
While using the standard mileage rate is easier forrecord-keeping, you may receive a larger deduction using the actualcost method. If you qualify to use both methods, the IRS recommendsfiguring your deduction both ways to see which gives you a largerdeduction. Just make sure you have kept detailed records tosubstantiate the actual cost method.
Meal and entertainment expenses. To deduct business mealsand entertainment costs, you must discuss business during,immediately before or immediately after the event. Your deductionis limited to 50 percent of the cost of qualified expenses, and youmust have receipts for any cost of $75 or more. If you have anindividual entertainment expense of less than $75, you can recordthe necessary information in an expense account book and not worryabout keeping receipts. Record the reason for the expense, amountspent, dates, locations, and people entertained.
Travel expenses. You can deduct ordinary and necessarytravel expenses you incur while traveling on business. Your recordsshould show the amount of each expense for items such astransportation, meals and lodging. Be sure to record the date ofdeparture and return for each trip, the number of days you spent onbusiness, the name of the city, and the business reason for thetravel or the business benefits you expect to achieve. Keep trackof your cleaning and laundry expenses while traveling because theseare also deuctible.
