Small Business Tax Help Are You Claiming Enough Deductions

The formula is pretty simple: your small business must pay taxes on what's left of your revenues after you have deducted all your expenses. That said, it would seem to make sense to claim the maximum allowable number and amount of deductions in order to reduce your tax liability. Luckily, the IRS gives you lots of choices as to tax deductions that you can legally claim.



Here are some deductions that you should think about when doing your business tax planning.



Here's some allowable tax deductions that you don't want to miss.



1. Deductions for Start-up Costs



In your first year of small business, you are allowed to write off as much as $5,000 in start-up costs. In addition you can write off an additional $5,000 in organizational costs. Not only that: you also have the option of spread out expenses not deducted in the first year over a period of 15 years, beginning with when you opened your business. Eligible costs include things like market research, company advertising, training of your employees, travel for business, legal advice and other costs. Consult your tax professional for more details.



2. Deductions for Education



First stop: IRS Publication 970, Business Deductions for Work-Related Education. For the most part, you can write off expenses related to your employees education if the courses relate to their jobs.



In other words, if the course helps them keep pace with the marketplace demands (or improve their skills) or if they need the course to actually keep their existing jobs, then the expense may be a legitimate deduction. The bad news is that you cant take a write-off on any expense related to training in a new, unrelated field. A couple of other things to remember: You can also claim a write-off if you are self-employed. Deductions also include the cost of getting to and from the classes. Consult your tax professional for more details.



3. Deductions for Vehicles



Be careful here: the rules for deducting automobile expenses are pretty detailed and the Feds pay close attention to anyone claiming these deductions. So, for starters, keep clear and concise records. You can deduct expenses two ways:



The first option is to claim a deduction by counting how many miles you drove while on business. Currently, you can claim a deduction of 44.5 cents per mile. Check to make sure that is the current amount, as it does change occasionally. The other option is to track your total expenses incurred on things like gasoline, repairs and maintenance.



Remember: keep good records. If youre using your own personal vehicle for your small business, make sure you separate the times you use it for business from the times you do not. Include dates, destinations, purpose of the travel, etc. Read IRS Publication 463 for more info. And heres an important point: if your employees use a business vehicle while running personal errands, for example, you have have to show this as income to them on their W-2.



A couple of other things to remember: If you bought a new (or previously owned) car, you can take a write-off. Youll have to decide if its better to take it in one single deduction or spread out over a period of time through depreciation. And if that car is a hybrid, you might be eligible for a tax credit. Read IRS Publication 8910 for more details. As always, consult your tax professional for more details.



4. Equipment Deductions



If you have purchased new or used business-related equipment, you can take a write-off on it. In 2006, the upper limit for purchases was $100 thousand, so you have quite a bit of latitude here. The key is to be able to show that 50% or more of the equipment's usage was business related.



Qualifying equipment includes computer hardware, furniture for your office, business machinery, cars and other similar equipment.



Make sure you read a current copy of IRS Form 4562 before planning your tax strategy on this point. If you decide you are not going to claim this write-off immediately, you can spread it out over a period of years by claiming depreciation on that equipment. Consult your tax professional for more details.



5. Deductions for Entertainment



The IRS definition of entertainment is pretty flexible. Generally speaking, if you attend a business meeting, for example, and you are not reimbursed for the expenses, youre allowed to write off up to half the entertainment expense. They do caution you that the entertainment must be in a business context. This means if you go to a seminar or conference, thats OK. Also, the entertainment should come immediately before or after the meeting. You get a break if you are self-employed; then, the 50 percent deduction cut-off does not pertain to you. Consult your tax professional for more details.



Conclusion



There are lots of ways to reduce your small business taxes. Generally it involves increasing the number and amount of allowable business deductions. Consult your tax professional for more details.



Ara Rubyan



For more info on Small Business Tax Help, visit Ara Rubyans Your Tax Help Online at www.yourtaxhelponline.com.






Taxes

What is tax?

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, secessionist movements or revolutionary movements). Taxes could also be imposed by a subnational entity. Taxes consist of direct tax or indirect tax, and may be paid in money or as unpaid labour

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