Donít overlook these business tax deductions
As a small business owner, you probably don’t need one more thing to do during the busy holiday season. But before you say goodbye to 2006, consider adding this: a search for missing business tax deductions. Finding one of these deductions might give you real tax savings.
Where do you start? First, think about the things you use in your daily work life. Are you taking full advantage of the home office deduction rules? If you use a portion of your home exclusively and regularly as your principal place of business, you might qualify. Similarly, the business use of your personal vehicle can be deducted. While keeping track of business miles can be tedious, it can be worth the effort come tax time.
Deductions you might not have thought of include the business use of a personal cell phone and the business portion of your monthly Internet access fee. Qualifying meals and entertainment expenses are also deductible, including the cost of entertaining at home — just as long as there is a legitimate business purpose.
Document your business expenses. Knowing how an expense is deducted is also important. Some expenditures are only partially deductible as itemized deductions, but may be fully deductible against self-employment income. Examples include legal bills, tax return preparation fees, and work-related publications. A word of caution: business expenses must be fully documented. Proper accounting records are essential to take advantage of these write-offs.
Self-employed taxpayers should also remember that 100% of health insurance premiums paid for themselves and their families can generally be deducted from their business income.
If you are considering a major business purchase, you might want to act before year-end. In 2006, up to $108,000 of qualifying property can be expensed immediately. (If you operate in a Hurricane Katrina-related Gulf Opportunity Zone, the limit is higher.)
One important way to save taxes is to maximize your self-employed retirement plan contributions. Otherwise, you might be leaving money on the table. And certain retirement plan contributions can be made as late as the due date of your return, even with extensions.
During this busy holiday season, take time to give yourself a break — a tax break! Call us for a year-end review to help you find those tax deductions you might otherwise miss.
Before you invest in any business, it's always a good idea to discuss the proposed venture with your advisors. If you would like assistance with evaluating a business opportunity or with legitimate tax planning, please call our office.