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WHAT DEDUCTIONS CAN I TAKE AS A SMALL BUSINESS?

Small business tax deductions

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WHAT DEDUCTIONS CAN I TAKE AS A SMALL BUSINESS?

COST OF GOODS SOLD

!Inventory sold during the year. !Labor that is directly related to your

product/service.

MILEAGE EXPENSE

! Mileage expense – any miles you put on your car for business are deductible (56 cents per mile for 2014 – 10,000 miles = $5,600

! Commuting is not deductible (mileage to and from your main office)

! Home office - if you work out of your home, then any business mileage for business is deductible.

! Keep a contemporary mileage log. If you get audited, this is what the IRS will look for. They do not like unsupported estimates

! Actual expenses? – some businesses prefer or are better off taking actual expenses. Consult your tax professional.

ADVERTISING AND PROMOTION

!Advertising is a common expense for small businesses.

!Yellow page ads, flyers, internet marketing, ads in papers

!Any expenses you have to promote your business

CONTRACT LABOR

! If you hire someone to do work for you (not an employee)

! If you pay them over $600 you must issue them a 1099

!Only include here if not recorded under cost of goods sold

DEPRECIATION

! Large assets/purchases should be capitalized. (E.g., a new computer or new desk)

! Record date of purchase, description of property, and total cost including taxes and installation.

! Some of these assets can be expensed through special depreciation or the Section 179 deduction. For more info, talk to a tax professional

INSURANCE

! Any insurance you have for your business is deductible (General liability, etc.)

! Life insurance you purchase through your business is generally not a deductible expense

! Self employed health insurance is deductible on page one of the 1040 (line 29 for 2014).

MEALS AND ENTERTAINMENT

! Must have a business purpose. (Entertaining Clients, discussing business with employees, etc.)

! Only 50% of Meals and Entertainment is deductible. ! One - this is easily abused. Some people want to

deduct everything as a business expense

! Two – you have to eat anyway. Or you might enjoy the Spurs’ game as well as trying to land a new client

INTEREST

!Interest on Loans, etc. taken out to maintain cash flows for your business

LEGAL AND PROFESSIONAL SERVICES

!Any fees you pay your accountant for bookkeeping, payroll, tax prep.

!Amounts paid to an attorney

OFFICE EXPENSE

!Paper !Calendars !Pens, Ink Cartridges, etc. !Any office related supplies or equipment

that is too small to be capitalized (i.e., depreciated)

RENT

!Rent for an office space !Rent for machinery or equipment

REPAIRS AND MAINTENANCE

!Any repairs or maintenance to keep the office and/or equipment up and running

SUPPLIES

!This is supplies not included in office expenses or as part of cost of goods sold.

! It can include small tools, if you don’t have enough for a separate category for small tools.

TAXES AND LICENSES

!Any taxes or licenses you have to pay for your business.

!Real estate tax on a business property. !Sales taxes are normally excluded from Sales

and expense, but if you included them as part of sales then you can deduct them as an expense

TRAVEL

!You can take per diem rates for travel and meals while away from home. Visit IRS.gov for per diem rates.

!Conversely, you can take actual expenses. !Either way, you are limited to 50% deduction

on your meals expense as noted previously.

UTILITIES

!Electricity !Gas !Water !Television – if it is a legitimate business expense

PHONE AND INTERNET

!Landlines !Cell phones - need to allocate based on

business use percentage !Internet in the office is deductible !Internet in a home office should be

allocated based on business use.

OTHER COMMON EXPENSES

! Continuing education ! Dues and Subscriptions ! Profession certification expenses ! Etc., all businesses are different. Any legitimate

business expense can be deducted. You may have a category that is unique to your type of business. You can just list it under other expenses.

OVERVIEW: COMMON BUSINESS DEDUCTIONS

!Advertising !Mileage expenses !Supplies !Office !Legal and professional !Phone

!Meals ! Insurance !Rent !Depreciation. !Etc.

CONTACT A PROFESSIONAL TAX PREPARER

!Contact a professional tax preparer for more details or for more specific questions

!If you’re in the Central Texas area, call Derland G. Bahr, CPA - 254-432-5724 or visit www.DerlandBahrCPA.com.