Entrepreneurs should avail this facility if they are operating from the environs of home. These deductions include:
1. Home Office: you can enjoy the deductions if you are operating from the house and the house is used for business purposes.
2. Car: you can get the car as a benefit for your business purpose, including the maintenance and mileage. This works out a lot and can save a lot of money.
3. Personal assets: if you are using your personal assts for business, then you can lay your hands on the tax deductions, like for example computers and furniture.
4. Business Journeys: air tickets, hotels, internal transportation, shipping and even tipping are tax deductible, if used for business purposes. For meals, the government allows deductions up to 50% only.
5. Gifts and Entertainment: now that you are in business, you need to keep your customers and clients happy and what better way than to gift them. But you get a relief up to only 50%.
6. Retirement: The payments you make when saving for your retirement are deductible from your personal income tax. Thus it follows that the dollars you spend for your retirement plan grow tax free in your business until you retire.
7. Family Connections: bringing your children as employees helps you in saving some money as the expenses payable towards them are deductible. Only kids above the age of 8 can be hired.
8. Social Security: As a self-employed worker, you have to pay double the social security contribution. Fortunately, half of this contribution is tax deductible in the 1040 form.
These are only a partial list of what is available to you, for a complete list, log onto the government website and check for yourself.
The tax system in the United States is an undeniable mess. With tens of thousands of pages of laws and regulations, the phrase cruel and unusual comes to mind when it is time to pay your taxes. President Jimmy Carter called the system a disgrace to the human race. Albert Einstein said the tax system was the hardest thing to understand in the world, much harder than physics. The system is such a mess, that some large corporations file one tax form every four minutes! The only way to fight the good fight against taxes is to understand and maximize deductions.
Business taxes can be summarized simply as calculating your total revenue, reducing this amount by as many deductions as you can and then paying tax on the remaining amount. Obviously, this represents a major simplification, but I offer it highlight the importance of deductions. They act as your lifesaver when you are floating in the ocean of tax codes and regulations.
Most people get caught up in the finite issues of tax deductions and miss out on deductions. To this end, it is important to understand the theme for deductions for small businesses. When considering whether an expense is a deduction, you should ask yourself the following:
1. Did it occur as part of my small business?
2. Was it an ordinary expense associated with my business?
3. Was it a necessary expense?
Many people ask for a more specific of an ?ordinary? expense. Alas, the tax code is vague, but this typically means an expense that another business in your industry would also claim. Admittedly, it is a vague term, but you will just have to determine how comfortable you are with claiming the deduction.
The second area people get confused with is the ?necessary? element of the test. Alas, the IRS has been kind enough to help us out here. A necessary expense is one integral to the development and maintenance of your business. Okay, the IRS hasn't helped much, but it is a guideline of sorts.
In many situations, small businesses can be fairly aggressive with their deduction claims. If audited, it important that you be able to state why a claimed deduction is an ordinary and necessary expense of your business. While obvious deduction such as business cards can be claimed, these vague definitions give you lots of wiggle room in other areas.
How aggressive should you be in claiming tax deductions? It really depends on your comfort level. The more aggressive you are, the more you should consider getting some professional CPA help to back up your claims.
Both Nicky Pilkington & Richard A. Chapo are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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