I think that Biggie Smalls understood the increasing pressures of running his own business. What are the two prime concerns a business owner worries about? The answer – increasing profits and decreasing expenses. This post will help you with the latter. Knowing how to use your business expenses to your tax advantage is essential to saving money. Listed below are some of the tax deductions that business owners (and the self-employed) can take advantage of.
Meals & Entertainment (M & E)
Probably the one that most people have heard of is Meals and Entertainment. If you are entertaining a current or potential client, you can deduct 50% of the cost as long as it is directly related to your business. You can also deduct these expenditures if the entertainment takes place before or after a business discussion.
If you use your car for work or have a company car you can deduct certain costs to maintain the vehicle on your tax return. There are two ways to take advantage of this deduction:
Actual Expense and Standard Mileage Rate.
The first, Actual Expense method, is self-explanatory. You can deduct all of your actual vehicle-related business expenses, such as gas, repairs & maintenance, etc.
The second is the Standard Mileage Rate. With this rate, you can deduct 57.5 cents (2015’s rate) for every mile driven as well as tolls and parking costs related to your business. Many find this cost to be the more beneficial of the two deductions.
You can deduct plenty of business travel expenses. Just keep in mind that if you also plan on traveling for pleasure, you can deduct the entire trip only if the trip was primarily for business. Otherwise, you will have to split the costs. Also, if you take your family along, you can only deduct your own expenses.
Related expenses include (but are not limited to): plane fare, costs of operating/renting a car, taxis, uber, lodging, meals, shipping materials, tips, etc.
Books, Education, Legal & Professional Fees
Purchasing books that relate to your business may lead to deductions. If you buy books that help you do without legal or tax professionals they are fully deductible.
With legal and professional fees, you may deduct in the year incurred. If you have any future benefit for these fees, wait to deduct the cost in that year.
Bad Debts (Goods vs. Services)
Not getting paid is frustrating, but luckily you may be able to deduct your loss. If it is a Good that you sold, you can deduct the cost of the good you were not paid for. Unfortunately, if it is a Service provided, you cannot deduct the time you devoted to your client.
Office Related Expenses
These expenses include those that keep your office running. You can deduct office supplies, telephone & TV bills, postage & shipping, rent, etc. You can also deduct items used to advertise and promote your business, such as business cards, website costs, and so on.
Home Office: This can be a tricky one because you will have to determine the square footage of the office space. By the standard deduction method, you can deduct $5 per sq. ft. (the amount is capped).
Software: You can generally deduct required software costs, but they must be depreciated over a 36-month period. There are certain exceptions to these rules that would be best to check with your tax professional.
If you have to move because of a business or job, you can deduct certain moving costs. The new job must be at least 50 miles away from your old home or job to qualify.
Bank service charges, business gifts, seminars, trade shows, business dues, business related magazines, casualty, and theft loss, etc. I would suggest always keeping track of your business related expenses in an excel sheet (even those you are unsure will result in a deduction). This way when it comes time to file your taxes you can discuss them all with your accountant. Accounting is very tedious and rules are always changing. Make sure to check all deductions with a tax professional to make certain that all regulations are obeyed correctly.
I hope this helped you all realize how many expenses you can use to your advantage when running your own business.
Image Credits: Title: dentons.com, M&E: dailyfinance.com, Auto: Autoexcellence.com, Travel: denverluxurycarservice.com, Office: themuse.com, Moving: meelheimsmoving.com. Knowledge base: nolo.com, Personal Knowledge
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