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Don’t Miss These Small Business Tax Deductions

By: Rick Gossett

 

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For any small business, it is critical to be aware of available tax deductions in order maximize profit. Surprisingly, many businesses fail to realize some of the deductions that apply to their business. Here is a list of tax deductions shared by the US Small Business Administration that you should be aware of as a small business owner.1. Health Care Tax Credit

The Affordable Care Act allows eligible small businesses to claim a tax credit of up to 35% if they provide insurance to employees and meet the following criteria: fewer than 25 full-time employees, average annual wages are below $50,000, contributes 50% or more towards health insurance premiums

2. Business Use of a Personal Vehicle 

If you use your personal vehicle for business use, there are two ways in which you can deduct the cost from your taxes: deduct the actual costs or deduct the standard business mileage rate as set by the IRS (56.5 cents per mile in 2013). You can also deduct parking and tolls paid on the business trip. Be sure to maintain proper records and documentation of all travel related expenses. 

3. Business Travel and Entertainment Expenses 

Small business owners can claim tax deductions for most travel-related expenses. This includes: cost of transportation, lodging, 50% of meal and business entertainment expenses, dry-cleaning and laundry, and business-related calls and tips. There are some limitations, however. For example, you cannot deduct the expenses of a spouse who is traveling with you. Other restrictions apply to international travel, cruise ship travel, and conventions. 

4. Home Office Deduction

As so many entrepreneurs work out of their home, it’s important to be aware of what stipulations apply to your home office on tax deductions. For this rule to apply, your home must be used exclusively and regularly for business use. Deductible expenses include phone and internet bills, insurance, rent and more. For more information on home office deductions, refer to the IRS website here.

5. Start-up Costs

If just starting your business, you can claim up to $5000 of start-up expenses and $5000 of organizational costs before you start running your business in year one. However, if your start-up or organizational costs exceed $50,000, your deduction will be reduced by that the excess amount. Remaining costs must be amortized.

6. Professional Fees and Training Costs

The following costs of doing business are fully deductible: training (class, seminars, certificates, books, etc.), professional organization membership fees, and fees for lawyers, tax professionals or consultants. However, any payments for services to be performed over several years must be deducted over that time period. 

7. Equipment and Software Purchases

In accordance with Section 179 of the tax code, you may fully deduct the costs of assets purchased up to $500,000. Deductible purchases include computers, furniture, software, vehicles and manufacturing equipment. There is a “Bonus Depreciation” that allows you to depreciate 50% of the cost of certain business property in addition to the Section 179 deduction and standard depreciation.

8. Moving Costs

If you have moved to a new workplace that is at least 50 miles from your previous place of business, then you can deduct the cost of moving on your individual 1040 tax return.

9. Hiring Veterans 

According to the Vow to Hire Heroes Act of 2011, you can claim a tax credit for hiring a veteran who has been unemployed for at least 6 weeks. The credit is worth 40% of the first $6,000 in wages or $2,400. If the veteran has been unemployed for at least 6 months, the tax credit is worth 40% of the first $14,000 in wages or $5,600.

10. Charitable Donations

Small business owners can deduct charitable contributions from their tax obligations for the same year the contributions as made, assuming they given to a specific person. Other deductable contributions include: property (which can include inventory), and costs associated with volunteer work or hosting a fundraising event. 

In order to take advantage of these deductions, you must use Form 1040, Schedule A and itemize each one that applies to your business. Check the IRS website here for more information on charitable contributions.

Published: June 13, 2013
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Rick Gossett

As COO of Tarkenton Companies for more than 20 years, Rick has been responsible for business software development, unique partnerships, business educational content and consulting, and more. Rick was the originator of Tarkenton Companies’s consulting service and initially handled all of the questions himself. Prior to joining Tarkenton Companies, Rick owned and operated a private practice as a CPA. Prior to that, he was a Senior Manager at Pannell Kerr Forster in tax and audit, as well as Principal in Ernst & Young's small business advisory group.

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