Small Business Deductions

Small Business Deductions:

The cost of doing business is an important part of calculating your Small Business Deductions and/or your Home Business Tax Deductions. Use this checklist to ensure that you're maximizing your income tax deductions in this category of business expenses.

Small Business Deductions

Small Business Deductions:

  • Costs associated with accounting: That is right, you can deduct those annoying accounting fees.

  • Advertising: You know those flyers you made? Deduct the price. Business cards? Deduct that cost too. In fact, costs associated with your yellow pages, newspaper, magazine, and radio ads are all deductible, as are signs, billboards, and brochures. You can also deduct the cost of promotion items like refrigerator magnets and keychains.

  • Bank Charges for business account: Safe deposit boxes, bank overdraft fees, and other incidental bank charges are all deductible.

  • Bookkeeping costs: Costs associated with payroll services, which will do the payroll for your business for a fee, are something you can deduct.

  • Internet access charges/on-line charges: If your business has a reason to be on the web, or if you need access to the web as part of your business, then deduct away!

  • Computer supplies: Printer ink cartridges, RAM upgrades, etc.

  • Continuing education costs/seminars: Note that if you incur education expenses as part of your existing business, these are deductible, but if you incur them as part of starting out on a new business or career, then you cannot.

  • Delivery costs: The costs associated with shipping your product or delivering your service is deductible.

  • Entertainment costs: A very tricky deduction! Talk to your accountant.

  • Equipment: The cost of maintaining equipment used in your business, whether rented or purchased, may be deductible. (You should consult your accountant on this issue, this gets into the capital improvement versus business expense issue.)

  • Facsimile costs: Yes, the cost of faxing is an expense.

  • Insurance premiums: Insurance premiums for casualty, inventory, credit, business interruption, overhead payment, vehicle, employee medical, workers' compensation, state unemployment, liability (all different types), and even some types of life insurance on key employees (so long as you are not the beneficiary) are all possible deductions.

  • Interest expenses: You know that money you owe the bank? The interest you pay can be deducted, so long as the proceeds from the bank loan were used for business purposes.

  • Legal fees: Yes, legal fees arising from managing your business or producing or collecting income are all deductible.

  • Licenses: Any license or regulatory fees paid to governments as part of your business are deductible.

  • Office supplies: Those staplers, calendars, letter trays, paper reams, etc. are all deductible.

  • Postage: Stamps are deductible. Keep your receipts.

  • Rental payments on your business site are deductible.

  • Repairs and simple maintenance of business: Again, this is an area where you need to talk to an accountant to make sure you are not deducting a capital expense.

  • Subscriptions: just like educational expenses, subscriptions to informative magazines are deductible.

  • Travel: Now there are some very particular rules you must follow to get a deduction for travel expenses. So do not think that you are going to convince the IRS that three weeks in the Caribbean was a business trip unless you can prove it. Your accountant can help you sort through the rules, but generally speaking, if you have hotel receipts and car rental receipts from true business trips, you have a deduction. There are also many nondeductible expenses which become deducible when you are on the road (e.g., dry-cleaning), so talk to your accountant about what else you might be able to deduct besides meals, transportation costs, and hotel charges.

  • Utilities: Deductions on its cost.

  • Wages: Wages paid to employees are deductible. But you really need to consult an accountant if you have employees, do not try to do you own accounting!

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General Rules for Home and Small Business Deductions

There are certain threshold issues that apply to all Home and Small Business Deductions.
  • Appropriateness of the expense - was the expenditure ordinary and necessary for your business?
  • Relation to a business activity - the IRS is keenly aware that taxpayers may be tempted to write off things as business expenses that are really nondeductible personal expenses. If the expense was only partly for business, you'll need to allocate it between the business and personal portion.
  • Do you have adequate records - in a tax audit, the IRS agent will ask you to show that the expense was in fact paid. This is where your recordkeeping routines come into play. If you have kept good records, proving your deductions won't be a problem. Remember, on most tax matters, the IRS can require you to prove that your deduction (or other item on your personal or business return) is correct. If you can't do this, the IRS will compute your tax liability based on its view of the question under dispute.
  • What are some common deductible expenses - we provide a list of some of the most frequently used deductions, and some that you may have overlooked
  • What are some common nondeductible expenses - while no list can be all-inclusive, we point out some items that are generally not deductible for most business owners.

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