10 Business tax deductions not to miss this tax season
1)Business Startup expenses – Startup expenses that are up to $5,000 can qualify for a valid business deduction. This can be taken as a business deduction the same year. This covers legal and company formation fees paid in connection with creating/ acquiring another business. If costs exceed $5,000, these costs can be amortized over a period of 15 years. Certain limitations may apply for costs over $50,000.
2)Business Miles – Entrepreneurs can take 53.5 cents per mile as a business deduction or can claim a proportionate share of car actual expenses that were used for business purposes.
3)Home office deduction – If you run your startup from your home, you may be eligible for the home office deduction. There are two methods, one is called as the simplified deduction that allows you to take up to 300 square feet @ $5 per square foot. The actual method allows you to take a prorated share of all the actual expenses that were used for business expenses. This may include utilities, telephone, fax expenses etc.
4)Depreciation –This is the reduction in value of an asset that needs to be written off each year as part of normal wear and tear. For income tax purposes, there are specific guidelines based on asset class and the type of depreciation that is allowed on the tax return.
In order to deduct this expense:
The taxpayer must own the property.
Item must be used in regular business income generating activity.
The property should have a determinable useful life of more than a year.
5)Intangibles: Similar to the depreciation of tangible property, there are specific tax guidelines for intangibles; e.g., patents, business books, operating systems, customer lists, copyrights, and computer software. These can be amortized over a period of 180 months. They are often referred to as 197 intangibles. Certain restrictions exist based on the premise of the intangibles that were created/acquired.
6)Customer gifts: You can deduct all or part of the cost within $25 limit per gifts are given to customers.
7)Travel and baggage expenses: The expenses that you incur during a business trip can be deducted. These include:
Airfare, train, bus or car expenses to your business destination.
Baggage and shipping costs to and from your business destination.
Car or truck expenses incurred in the operating and maintaining of your vehicle, g., parking expenses at the airport.
8)Self-employed Retirement accounts – There are 4 types of retirement plans available for the self-employed:
SEP IRA- Simplified employee plan: Best suited for self-employed and small businesses with any number of employees. The employer makes the contributions.
SIMPLE IRA- Best suited for businesses with less than 100 employees.
Self Employed 401 (k) plan- This plan is best suited for businesses with no employees.
401k plan- Ideal for large companies.
9)Health insurance deduction – You may be eligible for self-employed health insurance deduction. This is considered as a deduction to income rather than an itemized deduction. If you do not claim 100% of the deduction, the remaining can be claimed as an itemized deduction on your personal tax return.
10)Professional fees and continuing education: Any classes seminars, meetings that you attend relating to your business will qualify as a business expense. In addition, the professional fees you paid your attorney, CPA or a business advisor can also be deducted.