They say there is nothing certain but death and taxes. And while small businesses may be able to sidestep death, they are still in line to pay taxes. But, Uncle Sam does try to help out by providing a number of tax deductions aimed at supporting the small business sector. Here are a few top picks of small business tax deductions for and how to use them.
1. Legal and professional fee deductions
If you consulted with an attorney regarding your small business or have engaged an accountant to keep your books in order, you may be eligible to deduct those fees. Sole proprietors can write off fees using Schedule A of IRS Form 1040 or Schedule C, or Schedule C-EZ depending on the type of professional engaged.
2. Home office deduction
If you are working from home, there's good news on the tax front. Mortgage interest, insurance, utilities, repairs, and depreciation expenses may be deductible. And, even better, it is available to renters as well as homeowners.
To qualify for a home office deduction, you must: 1) use part of the home regularly and exclusively for business (an extra bedroom dedicated to the business, for example); and 2) show that the home office is your principal place of business.
3. Software and subscriptions
Software can be entirely written off in the year purchased, if it was used in the same year. Otherwise, the deduction is generally written off over 3 years. Take a look at Section 179 for deducting off-the-shelf software and software that came with a purchased computer, and that was billed separately.
4. Taxes deduction
That's right, you can deduct taxes on your taxes. To be a little less elusive, think sales tax for business items or excise and fuel taxes or real estate taxes on property used for the business. And though you may have guessed--just to clarify--you can't deduct federal income tax paid on business income on your taxes.
5. Car use deduction
Not all small business owners have a vehicle solely dedicated to business use, and if this describes you there is still a deduction that applies. After dividing car expenses based on actual mileage, you can deduct the amount dedicated to business use. The Car Expenses Section of IRS Publication 463 has the details on this deduction.
6. Telephone charges deduction
You can deduct calls made for your business. If you have a phone line dedicated to your small biz, you're set--just deduct all charges related to that number. However, if your phone line is comingled with personal and business calls, then be sure save your phone bills and circle business-related calls. Store until tax season and tally up total deductible expenses, or hand over to your tax professional.
7. Insurance premium deduction
Health insurance is often a touchy subject for small business entrepreneurs. There is a little help from the IRS though. All costs associated with paying your own health insurance premiums are fully deductible. There are a few rules and limitations, and the deduction generally applies to sole proprietors. Check with a tax advisor to find out more.
8. Travel, meals, entertainment, and gift deductions
Generally all travel expenses for a business-related trip can be deducted. And while the deduction is fairly broad, covering tips, taxi fares, parking, and fuel costs... it covers only 50 percent of meals taken during the trip. IRS Publication 463 is the go-to source to learn about these deductions.
So though running a small business may be all-consume and a daily challenge, rest assured knowing there are tools to help. Considering the complexity of many of the small business tax deductions and to safeguard against being audited, you may want to consider consulting a tax professional to get the most out of the small business suite of deductions.
- A dozen deductions for your small business (BankRate.com)
- Top Tax Deductions For Your Small Business (Nolo)
- Small Business Expenses and Tax Deductions (Business.gov)
- Tax Cuts for Small Business in Obama's Proposed 2010 Tax Plan (FindLaw's Free Enterprise)
- Sole Proprietors: NOL Carry Back Set to Expire Oct 15 (FindLaw's Free Enterprise)
- Tax Laws Affecting Businesses (provided by Stephen C. Thienel)
- Civil and Criminal Tax Penalties (provided by Hammond Law Group)