With 2007 coming to an end, small business owners need to be contemplating how they can use write-offs to their advantage come tax time. From the obvious write-offs like office equipment to the not so obvious (coffee?), below are the top ten small business write-offs, both the common and uncommon.
1. Unpaid invoices
Although nonpaying customers can be an annoyance during the year, you can claim any nonpayments from customers as a loss on your taxes. In addition, you do not need to take the deduction the year the loss occurred, allowing you to deduct unpaid invoices of the past on this year's return.
2. Deferred Income
Depending on your profit and losses for the year, it may be advantageous to defer any payments received during late December to the first week of January, as this will cut your 2007 tax bill.
3. Vehicle Deductions
There are numerous deductions for business vehicles. Not only can you deduct 48.5 cents per mile for business trips ranging from the bank and the post office to restaurants and business meetings, you can also deduct tolls paid during these trips. Just keep good records as to your business-related trips during the year.
4. Equipment Deductions
Small business owners can deduct up to $112,000 for equipment purchased in 2007. The equipment can be used or new and needs to be used at least half of the time for business purposes. Qualifying equipment includes computers, furniture and other types of "movable" equipment (this does not include property). In addition, computer software must be written off over three years because it will serve the business for more than a year unless it is "off-the-shelf" software, which can be fully deducted in the year it is purchased and used.
5. Home Office Deductions
If your office is located within your home, you can depreciate a percentage of your home's total square footage depending on the percentage that is used exclusively for your business. The basic rule of home offices is that you should be able to shut a door to your office and not need to go into that area except to work on business. If your office qualifies, deductions that can be taken as a percentage include mortgage or rent, home owner's insurance, gas, electric, water and trash, as they are all write-offs for the business.
6. Staying Connected - Internet, Phone, PDA
More than likely your business has an internet connection, and this monthly bill is a very handy business write-off. In addition, if you have a second phone line for business use, this is also a business deduction. Finally, if your cell phone and/or PDA are used for business purposes, those monthly bills are also eligible for a hefty write-off.
7. Business supplies
Business supplies can include everything from computers and printers to office supplies and postage. Even shipping costs can be deducted each year, in addition to anything else used to maintain the every day activities of the office.
8. Business Meals & Entertainment
Whenever you go out for a meal, coffee, or a drink in order to discuss business issues, whether it is with a colleague, a prospective buyer, or even your spouse, you can deduct the meal as a business expense. In addition, you can also deduct the miles it took to drive to and from the meeting. Simply write on the top of the receipt with whom the meeting was with and keep the receipt for your records. You can also deduct up to 50 percent of entertainment expenses for unreimbursed business meetings, but be sure the entertainment is within the business setting and immediately precedes or follows a business meeting.
9. Travel Expenses
Expenses related to business travel are deductible, which includes expenses for hotels, airfare, rental cars, cab fees, meals, etc. In addition, you can also deduct the expenses of business associates traveling with you. However, this is in relation to those professionally involved with the business; family members and friends do not apply. Again, just be sure to keep receipts for record-keeping purposes.
10. Education Deductions
Work-related education can be deducted as long as the courses maintain or improve job-related skills, according to the IRS. Small business owners can deduct employee's educational expenses if the courses apply to their job, and self-employed business owners can write off some of their own educational expenses. Transportation to and from the classes may also be deductible.
Although all expenses incurred while maintaining your business are usually tax deductible, small business owners must still keep accurate records of each of the above write-offs in order to have them qualify for tax deductions. For more information about business deductions, you should consult a tax professional.