One of the things that occupies most of a businessman’s time when it is time to file taxes is how much legitimate tax deductions they can make. Next to saving you some extra dough, the tax code provisions governing deductions also provide entrepreneurs with great personal benefits, such as providing them with the opportunity to take a vacation or business trip at a very small price. This could be you if you pay close attention to the IRS guidelines and get a full understanding of what is and what isn’t deductible.
If you are ready to keep some cash in your pocket after filing your taxes, ensure you do not overlook these business deductions:
Expense Associated with operating a business
Small businesses may deduct current business expenses such as office supplies, advertisements, repairs and utilities; keep in mind, however, that these deductions can only be made once you are in full operation. You are also allowed to deduct your business capital (cost for starting the business) of $5000 within the first year of operation. Remainder from your startup cost may be deducted in equal parts within the next 15 years.
The Deduction given for books, legal and professional fees
All business books bought that provide you with information as it relates to business and your trade can be deducted. You may also deduct books that you use to educate yourself about the law and taxes. If these books provided you with enough advice and information to render the services of a lawyer or tax preparer, then you can deduct the full cost of the books.
Consultants, lawyer and tax professionals’ fees can also be deducted during the year the services were used.
Auto expense deductions
If your business owns one or more vehicles that it uses for day to day operations or if you use your personal vehicle for business, you are allowed to deduct a portion of the cost used for keeping it in tip-top shape and on the road. It is a bit tricky trying to understand exactly how car expense deductions work; however, once you get an understanding of these deductions, you will always ensure that you include them in your tax returns.
First, you must understand that there are two different methods used for claiming auto expense.
These methods are:
· Standard mileage rate method – for every mile you drive, you are allowed a certain amount of deductions (standard mileage). You can also deduct all parking fees and tolls paid to conduct business.
· Actual expense method – with this method, you must keep a record of all business related expenses in order for you to make the deductions.
Keep in mind that the newer the car, the higher the tax deductions are if you use the actual expense method. This method also makes it possible for you to deduct depreciation on the vehicle used as well. The standard mileage rate on the other hand, must be used within the first year you begin using a new vehicle to perform business activities.
When filing your taxes and claiming deductions on a vehicle, if the vehicle is used for both personal and business gains, you can only file deductions on the portion of the car used for business.
Bad debts and deductions
Not all claims of bad debts are deductible. The deductions made as it relates to bad debt depend on the type of business you operate; whether, you sell a product or offer a service:
· Service Companies – Companies that provide a type of service to its customers cannot file a bad debt deduction if they provide their clients with their time and service and they do not pay.
· Goods – businesses in the business of selling goods, can on the other hand, deduct the cost of goods they sell but did not collect any payment for.
Entertainment for business
A 50% deduction is allowed for business owners who entertain potential customers and pay for this service if:
· The bill paid is associated with the business and the entertainment happens immediately before or after business is discussed.
· Directly affects the business and there is business discussion where the clients are being entertained.
To ensure that you receive the appropriate deductions, document the purpose for the entertainment on the bill or receipt for future references.
Interest deductions
All interests and carrying charges associated with business purchases bought using the finance method are fully deductible. If you take out a business loan, the interest is also fully deductible.
If you need a thorough run through of all small business tax deductions, consult TAXES MADE EZ, INC. and they will provide you with all the information and advice you need.
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