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Overlooked Tax Deductions for Small and Home Based Businesses

Tax season is annoying, especially when the IRS enjoys playing little tricks on small and home based businesses.  Large corporations can employ people that keep up with the multiple changes that occur each year and have prominent CPA firms to act as watch dogs.

Not true for small business.

We have to rely on keeping up on what is a legitimate tax deduction, and although some employ accountants, I know a lot of businesses submit their own tax report because it’s cheaper.

A prominent tax advisor stated that overlooked deductions every year allow the IRS to pocket $250,000 that should be left with us.

Some Common Small Business Deductions

Here are a few thoughts:  generally, you can utilize a Schedule C form if “your intent is to make a profit” and you “work consistently for a minimum of ten hours a week.”

Other things to take note of are keeping an appointment book and a phone log, placing business emails in a folder on your computer, maintaining a client database, having business cards and, of course, keeping all receipts. Information on receipts should include:  who, what, when, where, and why.

My personal tax adviser never allows me to claim entertainment…dinners mostly.  We run it under advertising. Now, if you and your prospect go Dutch treat, you can deduct 50% of your half of the tab.  I also use business gifts, particularly when clients introduce me to a potential prospect.

Car allowances are constantly being fiddled with by the IRS.  I believe you can write off the entire lease if you use your car for business well over 50% of the time.  Just remember when you are going to the grocery store, be sure to stop off and leave a sample or promotional piece while you are out. For those taking mileage, a simple travel log kept in the car is quite sufficient.  If you don’t think the price of gasoline is going to skyrocket again, you may consider that Big Vehicle deduction under IRS 179.  Just be sure on the door it reads GVWR6001 – I think that means it weighs 6000 pounds.

Travel expense is always fun if you are going someplace you enjoy.  Go to www.gsa.gov and compare the per diem costs of the most popular convention destinations. Here is a little trick that the IRS can’t touch.  The per diem cost in San Francisco is $48/day.  But if you stayed at Aunt Betty’s house and she drove you to the convention, you could still write off the allowable deduction.  Neat, eh?

Hire your children and make them work for that allowance and you can write it off.  They must contribute to your business, of course.

Presentation expenses are allowed.  That projector and screen that is used at trade shows and other venues can also be used to enjoy family parties.

The bottom line is this.  If the IRS comes calling you must be prepared with all the records they want to see.  A big smack down is writing off a portion of your home as a home office, including a portion of the utilities, taxes, assessments, etc.  The IRS has made it clear that the office must have a separate entrance and the room is actually an office…not the dining room table.  I stay away from that one altogether.

Hope this helps…we have a little time left.  If you have thoughts or comments on this topic, I’d love to hear from you.

Best,

Ruth Ann Hall