Small-business tax rule No. 1: Don't mess with the IRS.
1. Home office
The deduction, however, isn't limited to a full room. Your home office can be part of a room. Just how much of the space is deductible? Measure your work area and divide by the square footage of your home. That percentage is the fraction of your home-related business expenses -- rent, mortgage, insurance, electricity, etc. -- that you can claim.
2. Office supplies
Even if you don't take the home office deduction, you can deduct the business supplies you buy.
3. Furniture
When your office supplies are more than just pens and paper, you have another tax-cutting opportunity.
Office-furniture acquisitions provide a couple of choices. Deduct 100% of the cost in the year of the purchase or deduct a portion of the expense over 7 years, also known as depreciation.
4. Other equipment
Items such as computers, copiers, fax machines and scanners also are tax-deductible.
5. Software and subscriptions
The increased Section 179 provides another tax break in this area of business expenses. Previously, a company had to depreciate the cost of computer software over 3 years. Now, off-the-shelf software a business buys can be fully expensed in the year purchased.
6. Mileage
If you drive for business, the IRS wants to give you some of your money back. But Uncle Sam loves documentation, so keep a notebook in your vehicle to record the date, mileage, tolls, parking costs and the purpose of your trip.
7. Travel, meals, entertainment and gifts
Good news, small-business travelers. You might as well stay in a nice hotel, because the entire cost is tax-deductible. Likewise, the cost of travel -- air, rail or auto -- is 100% deductible, as are costs associated with life on the road (dry cleaning, rental cars and tipping the bellboy).
The only exception is dining out. You can deduct only 50% of your meals while traveling.
8. Insurance premiums
Self-employed and paying your own health insurance premiums? These costs are 100% deductible.
This break primarily benefits proprietorships, but there are limits. The deduction can't be more than your business' net profit. And it's not allowed if you were eligible for other health care coverage, including that offered by your employed spouse's medical plan.
9. Retirement contributions
Are you self-employed and saving for your own retirement with a SEP IRA or Keogh? Don't forget to deduct your contribution on your personal income tax return.
10. Social Security
The bad news: If you're self-employed or starting a small business, you have to pay double the Social Security contributions you would as an employee. That's because federal law requires the employer pay half and the employee pay half. Self-employed workers are both, meaning the total will equal 15.3% of your net profits.
11. Telephone charges
You can deduct the cost of the business calls that you make for business from home. When your bill comes in, circle the business-related calls, total them up and keep a copy. At the end of the year, tally your 12 bills and deduct 100%.
12. Child labor
Depending upon how much you paid them, they might be able to avoid income taxes. Plus, there is no Social Security tax when you hire your child who is 17 or younger and you can deduct the salary as a business expense. This break is available, however, only if you operate as a sole proprietor or as a partnership in which you and your spouse are the only partners. If your business runs as a corporation, then it, not you, is considered the employer and the corporation is not relieved of the tax liabilities.
Courtesy of BankRite
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