Tax Deductions for Small Business Owners – Part 2 . Call at Anytime to Speak With a Utah Lawyer!
Lawyers in Utah want the best for your business. New, growing businesses are arguably going to be a primary source for getting the economy up and going again. In order to help new businesses get rolling, governments often provide substantial tax benefits for starting a business, to learn more about those benefits read part 1 of this series.
As a review, Part 1 suggested the following deductions:
1. Auto Expenses
2. Expense of going into business
3. Legal and Professional Services
4. Bad Debts
Continuing on:
5. Business Entertainment
If you are entertaining clients, or prospective clients you may deduct 50% of the cost if it is:
• directly related to business and business is discussed at the event, or
• associated with a business function that takes place immediately before or after the meal deducted.
It is important to keep receipts and make notes on them. Some individuals have a business credit card where they only make business entertainment charges. While this method enables you to write off your expenses, it does not give you substantial evidence to protect you in the event of an audit. Make a note: “lunch with Joe Smith to discuss widget deal.”
6. Travel
Traveling deductions, are taken separately from mileage deductions. When you travel for business you can deduct air fare, cost of car operation, taxis, lodging, meals, shipping business materials, cleaning and pressing clothes, telephone calls, faxes and tips.
These deductions are different than at home expenses because you can deduct the entire amount of the expense in stead of $.51 per mile or 50% of the business meal cost.
You can deduct the expenses of your trip, even if personal fun is included as long as business if the primary reason for the trip. If you bring your family along, you can only deduct your portion of the trip.
7. Interest
If you operate your business using credit including credit cards and a line of credit, these items are fully tax-deductible. The same is true if you take out a personal loan and use the money for business expenses. Keep records of how the money is used for your business, but you may fully deduct all interest associated with running or growing a business.
8. New Equipment
Some businesses can write of the full costs of assets in the year they buy them rather than capitalizing them (meaning deducting the cost over subsequent years). If you have a question over which option is best for your business, contact a Utah lawyer to discuss your business and strategy.
Section 179 of the IRS code allows you to deduct up to $500,000 of the new cost of equipment in 2010 or 2011 (The deduction is scheduled to go down to $125K in 2012). When you have more than $2 million of equipment in service, this is subject to phase out. Some assets do not qualify for the deduction including real estate or inventory bought for resale.
There is a first year bonus depreciation deduction in effect for 2010 – 2012. This deduction allows tax payers to depreciate an additional 50% or 100% of the adjusted basis of qualified property during the first year the property is placed in service. This deduction can be taken in addition to the Section 179 deduction and offers some extreme tax savings. For January 1, 2010 through September 8, 2010 and for the calendar year 2012, the first-year bonus depreciation amount is 50%. For September 9, 2010 through the end of calendar year 2011, the first- year bonus depreciation is 100%
We understand that these things can be extremely confusing so if you have questions about how this bonus depreciation relates to you, please do not hesitate to contact a Utah lawyer or a qualified accountant. At our firm we provide free consultations with attorneys so please call 801-216-8885 to schedule your consultation at any time. Look forward to Part 3, including a section on the most frequently missed deductions on our website, www.shumwayvan.com.