Tax Deductions for Small Business Owners – Part 1
The math is simple, the less you pay in taxes, the more cash you have in your account. The more tax deductions your business can take, the lower your taxable profit will be. The attorneys in Utah at Shumway Van & Hansen, want your business to be successful, and want to enable you to benefit as much as possible from your hard work. Owning your own business can also yield some personal benefits, driving a nice car at a small cost, combining family fun with business trips. The key is to pay close attention to the IRS rules about what is and isn’t deductible. These rules can be so sticky (and let’s face it, petty), that we decided to make it simple in a three part series.
Let’s get going.
1. Auto Expenses
Just about every business owner can use a car for business; therefore, just about every business owner can deduct certain auto expenses. Mastering the rules of auto expenses can be tricky, so many people give up on trying; don’t. Your attorneys, Utah, are happy to consult with you about your options.
There are two methods of claiming expenses:
Actual expense method. You keep track of your actual business-related expenses.
Standard mileage rate method. You deduct a certain amount (the standard mileage rate, $.51 per mile in 2011) for each mile driven, plus all tolls and parking fees from business related trips. This does not include commuter costs, but travel from work to business meetings.
If you use a new car primarily for business, the actual expense method provides a larger deduction. If you are using the actual expense method you can deduct depreciation on the vehicle. The standard mileage rate requires that you use the deduction the first year you use a car for business. You cannot use the standard mileage rate if you have claimed accelerated depreciation previously or taken a section 179 deduction (see the “New Equipment” section in this series).
If you only have one vehicle and you use it for work and pleasure, you must divide up personal and business mileage; an auditor will not allow all of your mileage to be considered a business expense. If that happens, you’ll be needing the assistance of attorneys Utah for a very unpleasant reason.
2. Expense of Going into Business
Once you are operating a business, you can deduct all utilities, rent, office supplies, markets and repairs as a business expense. However, before you have your business going, these expenses are not deductible. The costs of getting a business going are capital expenses. During the first year of business you can deduct $5,000 (down from $10,000 2010) for the first year. You can deduct the portion in excess of $5,000 in equal amounts divided over the next 15 years.
If you are expecting to make a profit immediately, consider delaying paying some of your bills until after you are in business. If that is not an option, find a way to begin small so that you can officially start before you publically start. If you are expecting (like most businesses do), to have a loss for the first few years, taking the deductions spread out over a few years might be a better option.
3. Legal and Professional Fees and supplies
Business books, including all those books that help you run a better business and cultivate leadership (as well as legal and tax books) are fully deductible. Any money that you spend on professional services like accounting and legal services are also fully deductible.
Generally, fees that you pay to lawyers Utah, tax professionals and consultants can be deducted in the year incurred. If the work clearly provides a benefit for future years (for example, you pay an attorney to negotiate a 5 year lease) then it can be deducted over the life of the benefit).
4. Bad Debts
If you take a loss on bad debt for any reason, you may be able to write it off.
Goods. If your business sells goods, you can deduct the cost of goods that you sell but are not paid for. Meaning, your cost not the lost profit.
Services. If you provide services (legal services for example) you are not allowed a deduction on the bad debt that you charge for your time. You are, however, allowed to deduct the costs incurred with bad debt (costs of services, including postage, copies etc.).
If you have questions regarding your personal business and what tax benefits you might qualify for consult with one of the Shumway Van & Hansen lawyers. Utah has many qualified attorneys that can help you, and the Utah lawyers at Shumway Van & Hansen are available for a free consultation, call 801-216-8885. Feel free to read even more on this site about other areas in which our firm can assist you (www.shumwayvan.com).