Business taxes will be lower depending on the number of tax deductions the business can legitimately take. How successful the business owner is at reducing business’s tax liability depends largely on paying strict attention to IRS rules on just what is and what is not deductible.
When business owners calculating their business’s expenses, they need to keep these 13 business deductions in mind:
- Advertising and Promotion: The costs associated with advertising the business are deductible as a current expense.
- Auto Expenses: If a vehicle is used for the business, the business owner can deduct the cost of owning, maintaining, and operating it.
- Bad Debts: The rules differ depending on whether the business sells goods or services. If the business sells products, the owner can deduct the cost of goods that sell but for which the owner has not been paid. If, however, the business sells services, the owner may not deduct the loss associated with a transaction for which a client or customer has not paid.
- Business Entertaining: Owners may deduct 50 percent of the cost of entertaining either present or prospective clients or customers.
- Business Start-up Expenses: The costs of starting a business are capital expenses for tax purposes. These expenses must be deducted over the first five years of the business’s operation.
- Charitable Contributions: Limited liability businesses and S corporations (corporation that have elected to be taxed like a partnership) can make charitable contributions and pass the deductions through to the business owner(s). These can be claimed on the owner(s) individual tax returns. If the business is a standard (C) corporation, the deduction does not pass through and the corporation itself deducts the charitable contributions.
- Computer Software: The general rule states that the business owner must depreciate software over a 36-month period for use in that is bought for the business. There are some important exceptions to this rule, however. Owners may want to check with their tax advisor or IRS publications for more complete information.
- Education Costs: Owners may deduct the expense to maintain and enhance their qualifications for their present job, or training required by their employers. Owners may NOT deduct the expenses of a degree or other education program that qualifies them for a new job.
- Interest: Owners can deduct the interest charges incurred to finance business purchases.
- Legal and Other Professional Fees: Generally, owners can deduct in the year they incur them, attorney fees and fees they pay to tax professionals or consultants.
- Moving Expenses: To claim this deduction, the move must have been made in connection with work, the new workplace is at least 50 miles farther from the old home than the old home was.
- Taxes: Generally, owners may deduct the taxes they incur from running their business. There are many exceptions to this generality though. Taxpayers should check with their tax advisor or IRS publications for more detailed information.
- Travel: Many expenses from business travel are deductible, including airfare, ground transportation, meals and lodging, mailing or shipping business materials, clothes cleaning, telephone calls, faxes, and gratuities. If others accompany the owner on a business trip, the owner may only deduct the owner’s own travel.