Top Tax Deductions for Your Small Business
Using these tax deductions for your small business can save you money .
It ' s simple : The more tax deductions your business can legitimately take , the lower its taxable profit will be . Also , in addition to putting more money into your pocket at the end of the year , the tax code provisions that govern deductions can also yield a personal benefit : a nice car to drive at a small cost , or a combination business trip and vacation . It all depends on paying careful attention to IRS rules on just what is -- and isn ' t -- deductible .
1 . Auto Expenses
If you use your car for business , or your business owns its own vehicle , you can deduct some of the costs of keeping it on the road . Mastering the rules of car expense deductions can be tricky , but well worth your while .
There are two methods of claiming expenses :
� Actual expense method . You keep track of and deduct all of your actual business-related expenses .
� Standard mileage rate method . You deduct a certain amount ( the standard mileage rate ) for each mile driven , plus all business-related tolls and parking fees . In 2011 , the standard mileage rate is 51 cents per business mile driven , an increase from the 50 cents per mile rate in effect for 2010 .
As a rule , if you use a newer car primarily for business , the actual expense method provides a larger deduction at tax time . If you use the actual expense method , you can also deduct depreciation on the vehicle . To qualify for the standard mileage rate , you must use it the first year you use a car for your business activity . Moreover , you can ' t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years , or have taken a Section 179 deduction for the vehicle . ( For more on Section 179 , see " New Equipment ," below .)
If your auto is used for both business and pleasure , only the business portion produces a tax deduction . That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year . Certainly , if you own just one car or truck , no IRS auditor will let you get away with claiming that 100 % of its use is related to your business .
2 . Expenses of Going Into Business
Once you ' re running a business , expenses such as advertising , utilities , office supplies , and repairs can be deducted as current business expenses -- but not before you open your doors for business . The costs of getting a business started are capital expenses , and you may deduct $ 10,000 in 2010 , the first year you ' re in business ; any remainder must be deducted in equal amounts over the next 15 years .
If you expect your business to make a profit immediately , you may be able to work around this rule by delaying paying some bills until after you ' re in business , or by doing a small amount of business just to officially start . However , if , like many businesses , you will suffer losses during the first few years of operation , you might be better off taking the deduction over five years , so you ' ll have some profits to offset .
3 . Books and Legal and Professional Fees
Business books , including those that help you do without legal and tax professionals , are fully deductible as a cost of doing business . Fees that you pay to lawyers , tax professionals , or consultants generally can be deducted in the year incurred . However , if the work clearly relates to future years , they must be deducted over the life of the benefit you get from the lawyer or other professional .
4 . Bad Debts
If someone stiffs your business , the bad debt may or may not be deductible -- it depends on the kind of product your business sells .
� Goods . If your business sells goods , you can deduct the cost of goods that you sell but aren ' t paid for . �
Services . If , however , your business provides services , no deduction is allowed for time you devoted to a client or customer who doesn ' t pay .
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