Tax Tips for the Entrepreneurs
Twenty-five tax deductions you may not have heard of - but should know
Are you missing tax deductions you're entitled to?
The Schedule C tax form used by sole proprietors to report business profit or loss has 21 line items for business expenses—including such catch-all categories as "office expense," "supplies," and "other expenses." The tax forms for partnerships, LLCs, and S-corps are similarly broad. "It doesn't even begin to hint at all the things that a business can legitimately deduct," says Bernard Kamoroff, a certified public accountant and author of 422 Tax Deductions for Businesses & Self Employed Individuals. Don't expect your accountant to find all the deductions you qualify for—your accountant doesn't know your spending as intimately as you do.
Kamoroff says business owners can reduce their tax bills by deducting expenditures that the Internal Revenue Service doesn't explicitly outline, but are nonetheless legitimate business expenses. In general, a purchase must be "ordinary and necessary" in your trade to be deductible. Few of the often-overlooked write-offs on their own will cut your tax bill substantially, but in aggregate, they can be worth the time and effort to track and deduct them. "They're all nickel dime, but boy they can add up," Kamoroff says.
Vehicle Deductions Often Overlooked
Small business owners who travel for business may also deduct some of their travel costs. Business-related meals and entertainment are only 50% deductible, although you can't write off expenses that are considered "lavish and extravagant." If your trip is exclusively for business, lodging and transportation costs are fully deductible. If the trip mixes business and personal matters, you may still be able to write off some business-related expenses.
Aside from big write-offs like travel or home-office deductions, plenty of other expenditures can save you money on taxes. If more than half your cell phone use is for business, you can deduct the cost of the business-related calls. Write off your Web hosting and domain name charges. And deduct the cost of business-related books, magazines, and newspaper subscriptions.
Meticulous Records a Must
Flip through this slide show slide show for 25 tax deductions you might not have heard of.