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Small Businesses Owners: Remember these deductions!

They can reduce your Income Tax substantially.

Believe it or not, some small business people pay more income tax than others. The tax liability is a result of the total money you make and the deducted expenses. So if you are careful to deduct all allowable business expenses, it will have a definite impact on your tax bill. Therefore, the first objective is to account for all your business expenses to reach the true net income figure and reduce your income tax liability.
What business expenses are deductible?

To deduct a business expense, it must be ordinary and necessary. Whether an expense is ordinary and necessary depends upon the facts surrounding the expense. An expense is necessary if it is appropriate and helpful to the taxpayer’s business. An expense is ordinary if it is one that is common and acceptable in the particular business activity. However, there are some businesses that are unique in nature that would have uncommon expenses. Your Certified Public Accountant or your Tax Advisor can help greatly in this area. Give your CPA as much information as possible and let him or her make the decision.

The following items are the most commonly forgotten business expenses, but keep in mind that this list is not all inclusive.

Start-up Costs. This is one of the most forgotten business expenses that the tax law allows. It includes, broadly speaking, investigating the creation or acquisition of an active trade or business. You can elect to expense up to $5,000 the first year and the balance is to be amortized over a period of not less than 180 months.

Contract Labor. Include all manpower, payroll, subcontractors and consultants in this category. Also, Federal and State payroll taxes are deductible.

Professional Services. Include accountant fees & bookkeeping in this category.

Depreciation. Do not overlook depreciation on business equipment, trucks, automobiles, and office furniture. The cost and all other related expenses such as installation in some cases would be the base for calculating the appropriate depreciation. In addition, the tax law provides an additional bonus, under Section 179, which allows you to expense a portion of the capital asset in the first year instead of the full capitalization.

Advertising and promotion. From costly yellow pages ads to direct mail campaigns, to printing brochures. Any expenses you incur to advertise or promote your business are deductible.

Dues and Fees. Dues for membership in professional organizations or fees associated with membership are deductible.

Auto and Transportation Expense. You may deduct all ordinary and necessary transportation expenses from gross income for you and your employees, excluding the cost of traveling from home to your place of business. There are two methods of calculating this deduction: the mileage method or the percentage of actual expenses. The standard mileage rate under the first method is 50.50 cents from January 1, 2008 through June 30, 2008 and 58.5 cents per mile for the balance of the year 2008. Parking and tolls are deductible.

Home Office Expense. A taxpayer is not entitled to deduct any expenses using their home for business purposes unless the expenses are attributable to a portion of the home used exclusively on a regular basis. Certain conditions apply such as the home is the principal place of business, and the home is used to receive customers, clients or patients.

Gifts. Gifts to business associates or clients up to $25 per person per year are deductible.

Office expenses. Computer supplies are considered office expenses. Certain items could qualify for depreciation and/or a section 179 deduction. This item also includes postage, delivery and freight costs, printing, and copying and fax charges.

Bank Service Charges. Bank charges for things like cancelled checks and account service charges for business accounts are deductible.

Insurance. Liability insurance, including malpractice, overhead, workers compensation and other business related insurance could also be deductible.

Education Expenses. The cost of tuition, books and travel to courses, educational programs or degree programs are also deductible expenses.

Interest Expenses. Interest incurred in a trade or business or in the production of rental or royalty income is deductible from gross income. Interest on business loans and credit cards is also deductible.

Licenses, Fees and Permits. If your business requires a license to operate in the state, this cost is deductible as well as the cost of any fees or permits you need to operate your business in accordance with state or local laws.

Rent. All different types of rental expenses such as office space, storage, and tools and equipment rental costs are all deductible.

Telephone. Small business can deduct telephone expenses including local and long distance charges, monthly service charges and internet service as business expenses.

Repair and Maintenance. Repair and maintenance expenses for equipment, office and trucks are deductible.

Legal Fees. All professional fees incurred as a cost of doing business are deductible including the fee for preparing tax returns.

Utilities. Gas, electric and other utility costs associated with the business are deductible.

Uniforms & Special Work Clothing. Painting and other construction contractors, as well as professional nurses, security, lab, and certain industrial businesses and others require uniforms and special clothing, the cost of which is deductible.

Travel Expenses. The expenses related to travel to business-related activity such as seminars and conferences are deductible. Costs such as transportation, meals, lodging and fees are included. Travel meals are only 50% deductible. There are certain rules concerning foreign travel. Ask your CPA about these rules.

Again this is not an all inclusive list of deductible items. This is a sample of some of the expenses that are important to remember to deduct in order to reduce your net business income, which will reduce your income tax liability.


©Mahmoud & Associates , 2009