Great Small Business Tax Deductions

Posted: April 08, 2010

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.

[caption id="attachment_7383" align="alignright"]©Eclipse Digital - Fotolia.com[/caption]When you're totaling up your business's expenses at the end of the year, don't overlook these 14 common business deductions.

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 2010, the standard mileage rate is 50 cents per business mile driven, a decrease from the 55 cents per mile rate in effect for 2009.

As a rule, if you use a newer car primarily for business, the actual expense method provides a larger deduction at tax time. 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 percent 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, $5,000 of which you may deduct 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. Education Expenses

You can deduct education expenses if they are related to your current business, trade, or occupation. The expense must be to maintain or improve skills required in your present employment or be required by your employer or as a legal requirement of your job. The cost of education that qualifies you for a new job isn't deductible.

4. Legal and Professional Fees

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.

Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business.

Read the whole story and get more valuable deduction tips at TalentZoo.com.

About the Author, Ted Jenkin

Ted Jenkin is the founder of oXYGen Financial located in Atlanta, GA. He has done numerous radio shows, and has been featured before in Smart Money and Atlanta Magazine. See his blog at www.yoursmartmoneymoves.com, and breathe easier® with his daily financial advice.