IRS Tax DeductionsAn Educational Module by

AmeriPride Tax Grouphttp://AmeriPrideTaxGroup.com

Tax Deductions

• Tax lower taxable profit for businesses.

• Strict adherence to tax code is required to ensure that the expenses are legitimate deductions.

• As you're adding up your business's expenses, make sure to look for these common business deductions.

Auto Expenses

• The IRS makes provisions for you to write off some or all of these expenses as long as you use your car for business purposes, or your business owns the vehicle.

• There are two methods for claiming automobile expenses: • You can track and deduct all of your actual business-related expenses, • or simply deduct a pre-defined amount for each business mile driven.

NOTE: If you drive a newer car for business, the actual expense method typically offers a larger deduction.

• One word of caution: if your auto is used for both business and pleasure, only the business use can be deducted. This means you must track how the vehicle is used throughout the year. It’s important to recognize that an IRS auditor will look carefully at this expense.

• Don’t try to claim that 100% of your car’s use is business-related if you don’t have another car that is slated for personal use.

Legal & Professional Fees

• Anything you pay to your lawyer, tax professional or other consultant can typically be deducted in the year the expense incurred.

• If the work clearly relates to future years, it should be deducted over the life of the benefit.

• If this seems unclear, a competent CPA, EA or attorney who specializes in tax can help you with this expense.

Education Expenses

• Getting an education related to your business, trade or occupation? You can typically deduct these costs, but you must adhere to strict rules. • The expense must be to maintain or improve

skills required in your current line of work• It must be required by your employer or be a

legal requirement of your job. • NOTE: The cost of education for a new job is

not deductible.

Starting a Business

• Some businesses are fairly inexpensive to start and provide a very clear cut breakdown of start-up vs. ongoing business costs.

• Items such as advertising, office supplies, utilities and repairs can be deducted as part of ongoing business expenses.

• However, if you have capital expenses to get your business started, those must be deducted over the first five years you are in business.

• If you anticipate making a profit immediately, you may be able paying certain bills after the business is running.

• However, if you anticipate suffering losses the first few years of operation, it might make more sense to take the deduction over five years, so you'll have some profits to offset.

Bad Debts

• If someone refuses to pay a bill, the bad debt may or may not be deductible depending upon the kind of product you sell.

• Businesses that sell goods can deduct the cost of goods that that are sold but not paid for.

• Service providers are not allowed to take a deduction for time for a client who refuses to pay.

• If the sale was included in income, then when the debt became worthless it could be deducted as a bad debt.

Software

• Software purchased for business use should be depreciated over a 36-month period unless they meet one of the following three criteria:• Software with a useful life of less than a year can be

deducted as a business expense in the year you buy it.• Software that comes with a computer, with its cost is not

separately stated, is considered part of the hardware. This can be depreciated over five years.

• According to a special provision of IRC Sec. 179, an entire computer system, including bundled software, can be written off in the first year if the total cost is less than a specific amount.

• NOTE: Your tax professional should know the accurate figure for the designated tax year.

Travel

• The cost of the following are all potentially deductible:• Plane fare• Transportation (rental car, taxi, bus, etc.)• Phone and fax communications• Hotels• Meals• Shipping business materials• Clothes cleaning• Tips

• NOTE: For trips that combine business and pleasure business must be the primary purpose of the trip and you can only deduct the expense for your portion of the travel, as though you traveled alone.

Moving Expenses

• Moving because of your business or job may afford you certain deductions that would otherwise have been considered non-deductible personal living expenses.

• To qualify, the move must have occurred in connection with your business.

• It could also be for your, if you are an employee of your own corporation or someone else's business provided that the new workplace is at least 50 miles farther from your old home.

• Remember, moving expenses aren't technically business expenses.

• There is a place to itemize them on Form 1040.

Interest

• If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible.

• The same is true if you take out a personal loan and use the proceeds for your business.

• Be sure to keep good records showing that the money was really put into your business otherwise, if you're audited later, the interest expense deduction could be disallowed because it's considered a personal expense.

Entertaining

• If you entertain current or prospective clients, you may deduct 50% of the cost provided that the expense is:• "directly related" to the business AND

business is discussed, or• "associated with" the business and it occurs

immediately before or after a business discussion.

• NOTE: Always remember to notate the business purpose on the receipt.

Taxes

• Taxes incurred for business operation may be deductible depending on the type of tax.• Sales tax on items you purchase for day-to-

day operations is deductible as part of the cost of the items.

• Tax on larger business assets, such as vehicles, must be added to their cost basis, which means it isn't all deductible in the year the vehicle was bought.

• Excise and fuel taxes are separately deductible expenses.

Taxes cont’d

• For businesses that pay employment taxes, it is important to note that the employer's share is deductible as a business expense however, self-employment tax is paid by individuals, not their businesses, and therefore is not a business expense.• Federal income tax paid on business income is never deductible.• State income tax may be deducted on your personal return as

an itemized deduction, not as a business expense.• Real estate tax on property used for business may be

deductible, along with any special local assessments for repairs or maintenance.

• These taxes may not be immediately deductible; instead, depending on certain factors, may be deducted over a period of years.

Advertising

• The cost of ordinary advertising, including business cards, ads, etc., is deductible as a current business expense.

• Promotional costs must create business goodwill and provide a clear connection between the sponsorship and your business.

Charitable Contributions

• Partnerships, limited liability companies or S corporations (corporations that have chosen to be taxed like a partnership) can make a charitable contribution and pass the deduction through to an individual to claim on an individual tax return.

• For regular (C) corporations, the corporation can deduct the charitable contributions. This includes old computers and office furniture as well as cash, as long as the equipment has not been fully depreciated (written off).

Final Note

• Tax rules change from year to year

• If you have questions, call 855-468-2929 today and ask one of our CPAs, EAs or attorneys to review the facts about any deduction you’d like to claim.