Are you deducting everything you can for your small business? Don't forget these important deductions as you prepare for tax time!Congratulations! You have started your own business! One of the benefits of owning your own business is the tax deductions associated with business ownership. There may be some deduction opportunities you're not aware of as a new entrepreneur. Don't forget to count these business expenses as write-offs.
Start-Up Cost Deduction
Start-up expenses didn't become immediately deductible until 2004. Today, new business owners can deduct up to $5,000 in start-up expenses within the year their business is launched. These costs can include studying prospective businesses and financing the actual launch of the business. Money spent on initial advertising expenses, employee training, and equipment can all be credited as deductible start-up costs.
Home Office Deduction
Home-based businesses should consider counting a portion of their residence as a business deduction. In order to qualify, there must be a specified area in the home used exclusively for the business.
How to calculate it: Measure both the square footage of the home area used for business and the total square footage of the home. The resulting ratio is the percentage of total home expenses that may be deducted as business expenses. If the business has a loss or the deduction of a home office would create a loss, then a home-based business deduction is not allowed. However, the expense can still be carried forward to future years.
Office Rental Deduction
Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
Auto Use Deduction
If you use your car for your business there are certain car expenses you may be able to deduct i.e. gas, maintenance, or upgrades to fit your business purpose (GPS, Bluetooth capability, automotive upgrades).
Travel and Entertainment Deductions
The IRS doesn't mind your mixing business with pleasure—within reason. You can deduct entertainment expenses for business meetings. The entertainment must be within a "clear business setting" (such as at a conference) or should immediately precede or follow a business meeting.
Travel expenses are also tax-deductible. The IRS recommends keeping a log of your expenses and receipts. Transportation (such as airfare), lodging, and even dry cleaning can be deducted, as well as at least half of any meals you have while traveling. You also can deduct expenses for business associates traveling with you. You can't write off expenses for family members or friends if they accompany you, unless they are employees and are professionally involved in the business end of the trip, but it is fine to deduct your portion of the trip if it is for business.
There is a fair amount of expenses the IRS will let you deduct for your small business, just be sure to keep good records, be honest with your deductions, and don't abuse the luxury of having your own business.