It’s that time of year again, when business owners across the country prepare for and file their annual tax returns. For your reference, here are five tips for making sure you get the maximum deduction for common business expenses:
1. Business Meal Expenses
“Most business owners are aware of the tax rule that disallows 50% of their otherwise allowable deductions for business meals… What is not nearly as widely known is that there are several exceptions to this 50% disallowance rule. When one of these exceptions applies, you generally receive a 100% deduction for the business meal expenses which might just make even a good meal taste that much better.” (Exceptions to the 50 Percent Disallowance Rule for Business Meal Expenses by Duane Morris LLP)
2. Business Startup Expenses
“If your business is new, you may deduct up to $5,000 in start up costs in the first year of business and $5,000 in organizational costs but only after you actually start your business. This has been in force since October 22, 2004 but the rules would differ if your expenses exceed $50,000. Any amount in start up expenses over the $5,000 may be deducted over 15 years in equal amounts. You can write off market research expenses, employee training, advertising expenses etc.” (Tax Attorney for 33609 on Deductions for Small Businesses (part 1) by Darrin Mish, Tampa Tax Attorney)
See also Part 2 and Part 3
3. Business Travel Expenses
“… [A]ctual transportation expenses (cabs, plane fare, etc.) are deductible for out-of-town business trips and include the costs of getting to and from the place of business activity, i.e., travel to and from the departure airport; the airfare itself; baggage fees and tips; cabs to and from the destination airport; and so forth. Costs for rail travel or to drive a personal vehicle also fit into this category. The bottom line is domestic transportation costs are 100-percent deductible, as long as the primary reason for the trip is business rather than pleasure.” (Summer Business Trips Combined with Vacation May Provide Tax Benefits by Duane Morris LLP)
4. Bad Debt Expenses
“In a bad economy, many businesses fail to focus on their accounts receivable to determine which ones are either fully or partially collectible. To the extent the bad debts are worthless, they can be deducted in the year they become worthless. If you use a collection agency, you can deduct the portion of the debt that will go to the agency as a fee (typically around 25 percent). You can write that portion of the debt off in the year that you turn it over to the agency.” (Minimizing Taxes Through Effective Planning by Luce Forward)
5. Net Operating Losses
“An NOL is the excess of business deductions (computed with certain modifications) over gross income in a particular tax year. A deduction is allowed for that loss, through an NOL carryback or carryover, in some other tax year(s)… Individuals, Subchapter C corporations, estates and trusts and charitable organizations (with respect to the unrelated business income tax) can benefit from NOLs.” (What To Do With Net Operating Losses by Good Attorneys At Law, PA)
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Bonus deduction… What Makes Business Tax Deductions Allowable (Darrin Mish, Tampa Tax Attorney)