Want to know the secret to my success?
It’s my accountant.
She’s helped me for years reduce the amount of taxable profit my business makes by reminding me of the many deductions small businesses like mine can take. The more deductions your business takes the less Uncle Sam gets his greedy little hands on your hard earned money.
Here’s a quick reminder of some of the lesser known deductions you can take on your taxes this year so you don’t have to pay out an arm and a leg.
1. Auto Expenses
Even home based businesses require the help of an automobile from time to time. They take us from one conference to the next and to the post office to ship out customer’s purchases. If you use your car for businesses purposes you can deduct some of the costs associated with keeping your vehicle road ready. There are two ways to figure out how much you can deduct in this category: the standard mileage rate method or the actual expense method.
The Standard Mileage Rate method. For 2010 you can deduct 50 cents per each business mile driven. In 2011 the rate will increase to 51 centers per mile.
Actual Expense method. Determine any and all business related expenses to operate the car. Include gas, oil, repairs, tires, insurance, registration fees, etc. attributable to business.
If you use your automobile for business and pleasure (which will be 99% of us) you may only deduct those expenses related to your business. You will have to track those expenses over the course of the year. And please, please, please do not try to tell the IRS that although you only own one car you use it 100% for business. That will never fly if you get audited.
2. Home Office
If you work out of your home you are entitled to deduct a portion of your rent or mortgage, utilities, repairs and depreciation. The IRS says you must have a designated space that you use regularly and exclusively for business to claim this deduction. Deducting the guest room that doubles as a home office isn’t going to fly with Uncle Sam.
To determine how much space you can deduct measure the work area and divide it by the square footage of your home. That percentage is the fraction of your home related business expenses that you can deduct.
3. Expenses of going into business
If you started a business in 2010 you can deduct $10,000 of your start-up costs. The rest must be deducted in equal amounts over the next 15 years.
4. Fees for professional advice
You can deduct any fees you pay to accountants, lawyers, book keepers, or consultants for their professional services in the year you incur their services. In addition you can claim deductions for business related books, magazine subscriptions, safety deposit boxes and bank fees.
5. Interest Charges
When you take out a business loan or charge a business expense any interest and carrying charges you incur can be deducted. It’s important to track expenses and keep detailed records that show how and what they money was used for in your business in case you ever get audited.
6. Last year to deduct software
2010 is the final year you can deduct the full cost of off-the-shelf computer software in one year. Starting in 2011 you will no longer be able to do this. As a general rule, computer software purchased for business use must be written off over the course of three years because it will be used for more than one year.
7. Advertising Costs
You may deduct the cost of advertising your goods and services as a current expense. Advertising expenses such as business cards, temporary signage, Yellow Page ads, newspaper ads, TV and radio ads including any production expenses can be claimed as deductions. You can also deduct promotional and publicity costs that create goodwill towards your business. You can sponsor a local event like a celebrity golf tournament or a youth baseball team.
8. Insurance Premiums
You can deduct premiums you pay for business related insurance. Common business related insurance expenses include:
-Liability and malpractice insurance
-Key person life insurance
-Property Damage protection such as fire, theft or flood
-Workmen’s compensation
-Automotive insurance
Of course there are many more deductions small businesses can claim to reduce their taxable earnings. Travel expenses, office supplies, education expenses, new equipment, charitable contributions, the list goes on and on. You can find information on these common deductions by doing simple tax deduction searches through any search engine. My advice is to seek the counsel of a professional when considering any deductions. And why not, any fees you pay to an accountant are tax deductible!
Until next time…
Ethan Warrick
Editor & CEO
P.S. When in doubt of any tax questions, seek the advice from a professional accountant. In the long run it will be worth it.
