As a small business owner, you can take advantage of numerous tax deductions to reduce your tax bill and keep more of the hard-earned income you make. Many deductions are often overlooked and go unclaimed. Corporate Tax Network recommends that you consider these five commonly missed deductions when filing your taxes:
1) Home office deduction
The home office deduction is a very beneficial tax deduction if you have a home office. You can write off a portion of the bills you pay that are directly related to conducting or starting a business. These deductible expenses include mortgage interest, insurance, rent, power, Internet access, and home repairs. The caveat is that these expenses must be directly tied to running a business. They must be part of a specific room or area in your home that is designated for business activities. For tax year 2013, the IRS plans to simplify the calculation of this deduction. Taxpayers will be able to easily take a standard deduction of $1,500 for their home office expenses.
2) Vehicle deduction
It’s not always obvious, but writing off expenses related to your vehicle is an option for taxpayers who use it for business purposes. You must use your vehicle to travel from your place of employment or your home office to another location for business-related activities. The deduction is based on either miles driven or actual expenses. The standard mileage rate for 2013 is 56.5 cents per mile driven. As for actual expenses, you can include gas, tolls, vehicle maintenance, and insurance in your deduction. It’s important to consider both options to see which one will give you the largest deduction.
3) Health insurance and medical expenses
Health insurance premiums and medical expenses may be deductible. If you are an employee, deductible medical costs must exceed 7.5% of your adjusted gross income. If you are a business owner and have a self-insured medical reimbursement plan, you may be able to deduct 100% of any out-of-pocket medical expenses you incur. In addition, medical costs for spouses and dependents are often deductible.
4) Meals and entertainment
Another commonly overlooked deduction is for meals and entertainment. This is a favorite of first-time business owners who have never been able to write them off. Meals and entertainment must be ordinary, necessary, and directly associated with a business activity. For example, several employees may eat at a restaurant and discuss business-related subjects. Be sure to keep your receipts and record the names of the people you were with and what specific business was conducted during a meal or other entertainment activity.
5) Charitable contributions
Noncash contributions that are given to qualified charities are also tax deductible. The value of various items that include furniture, clothing, and common household items can be fully deductible. Used vehicle donations are a write-off in many cases as well. Again, remember to keep all of your receipts and written acknowledgments from charities to show as proof of your charitable contribution.
Jason Sager, CPA is a tax manager at Corporate Tax Network. Sager specializes in working with small business clients in various industries, including technology and emerging companies, real estate, consultants, and distribution. He also has extensive experience in the areas of financial planning and wealth management. Corporate Tax Network is a national full-service accounting firm that specializes in assisting startups and small businesses with tax planning and preparation, bookkeeping, and payroll. Learn more at www.corporatetaxnetwork.com* or follow @CorptaxNetwork.
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