If you are a small business owner, there are several deductions available to you if you know what to watch out for. To reduce your tax liability and save money with the Internal Revenue Service (IRS) each year, there are some common deductions to keep in mind:
Start-up Cost Deductions: these are deductible expenses accumulated by starting up your business. You can deduct up to $5,000 in start-up and $5,000 in organizational costs during the first year of operation. These deductions are valid if they were paid or incurred after Oct. 22, 2004. There are different rules for expenses prior to that date or if your costs go beyond $50,000. Expenses that aren’t covered can be amortized over a 180-month period as soon as you open your business. These include market research, advertising, employee training, and others.
Education Deductions: read Publication 970 if you want to know how to deduct educational expenses. As a rule, employers can deduct employee educational expenses only if the courses help improve job-related skills or if that course is needed for an employee to continue working for the company. Self-employed business owners can also write off some educational expenses like transportation to and from school.
Vehicle Deductions: You must keep very detailed records for this type of deduction. Whether you are deducting based on mileage, gasoline amount or for maintenance, make sure you are keeping records. If you use your personal vehicle for business related reasons, keep a record of how far you went and why. If an employee uses a business car for personal reasons, make sure to note it on their wages and W-2 forms. Did you know that you can even get credits for using environmentally friendly cars? The use of hybrid cars can give you a tax credit of up to $3,150.
Cell Phone Deductions: you can use your cell phone bill as a tax deduction if it’s part of your business. Do not, however, use it for personal calls. Maintain good records and the phone bills as proof that the calls made were for business purposes.
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