TAX TIME IS HERE
Tax time is right around the corner for individuals, small business owners
and corporations. All are looking for any type of tax break they can deduct out of the thousands of pages of the federal tax codes. Many are going through their income and expenses to see where their bottom line will end up.
Some individuals file their own taxes online but many business owners hire a professional accountant to perform that dreadful task. You need to provide your accountant with any major equipment purchases, changes that occured during the tax year and possibility staff hiring or firing during the year.
10 Common Business Tax Deductions
SMALL BUSINESS TAX BREAKS
Employees – If you are operating as a sole proprietorship or S-Corp and have your spouse employeed in a flow-through entity this can lower your taxes by deducting the wages and contribute the funds to some sort of retirement plan, speak with your accountant. If you hire a person under 18 in some states, dependents of the self-employed that qualify may be exempt from Social Security and Medicare taxes.
Tangible Property/Equipment – Most business equipment is tangible property and is known as an asset. Assets mainly are depreciated over a
period of time, depending on the type of equipment, could be 7 years. Some accountants may elect to deduct the entire purchase price in the same year. These write offs must pertain to your business and be resonable. When the economic stimulus package was signed section 179 set new, higher limits (and bonus 50% depreciation) that were first introduced in 2008 have been extended for 2009. This means the limits are almost double from previous (pre 2008) years.
When you purchase an asset and take the tax deduction you must also report when the asset was sold and the selling price. Some assets may be sold for more than the purchase price and the difference is taxable income, which must be reported and taxes paid. Most equipment purchases will depreciate and won’t be sold for a profit. Speak with your accountant on this issue before selling any asset.
If you finance equipment, any finance charges that you incur may also be deducted.
Outside Sales – If you use a vehicle for your business and want to deduct mileage of your trips, it is required you keep a mileage log. The government may change the current mileage rate allowed from year to year. For the 2009 tax year the mileage rate is $ .55 per mile. I believe this rate will change for the 2010 tax year to $ .50 per mile.
Home Office – When working from your home office, make sure the office space contains only items to operate your business. Computers, business phone lines, faxes and office furniture if fully allowed for a write off. You may also deduct a portion of the other expenses you incur in your home if they are necessary to operate your business like utilities, homeowners insurance, property taxes and mortgage interest. This is usually calculated by taking your square footage of your office divide that by the total square footage of your home. This percentage is what is allowed to be deducted as operating expenses.
Travel and entertainment – When traveling keep all receipts pertaining to hotel room, tolls and bridges and flights. If traveling for a coporate meeting these expenses are allowed if you keep records of the business activity that is conducted. Also note the reason for any employee that needed to attend. As far as meals are concerned the government has standard deductions for this. Employee or client meals are at 50% but if you are working past your normal working hours and buy dinner for your working employees this is 100%.
Health Insurance – A few years ago a small business owner could not deduct 100% of their health insurance cost. This has finally changed where the small business owners can deduct the same cost like the big corporations have done for years.
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Drew Miles on Maximizing Business Tax Deductions and Tax Write-offs
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