Tax Deductions for Small Business Owners – Part 3. A Utah Lawyer Specializing in Tax Can Save you a
So far in our Utah Lawyer Small business tax deduction series we’ve discussed the following ways to save your business money through tax deductions:
1. Auto Expense
2. Expense of going into business
3. Books and Legal and Professional Fees.
4. Bad Debts
5. Business Entertaining
8. New Equipment
Some lesser-known business deductions include some of the following:
If you move because of your business or job, you may be able to deduct certain moving costs that would otherwise be personal living expenses. To qualify, you must have moved in connection with your business or job and the new workplace must be 50 miles further away from your old home than your previous work place was.
In general, any software purchased for a business must be depreciated over a 36-month period; here are some exceptions and considerations though:
Computer software placed in service from January 1, 2003 to December 31, 2010 is eligible for a Section 179 deduction. Meaning that 100% of the cost of the software can be deducted in the year it was purchased. Starting in 2011, you can no longer use Section 179 to deduct generic software (meaning not proprietary).
When software comes with a computer, and its cost is included in the total cost of the hardware, you depreciate the software cost the same as the hardware (over 5 years). Under Section 179, however, you can write off the whole computer system in the first year if the total cost was less than $133,000.00 in 2010. More information is included in IRS publication 946.
11. Charitable Contributions
If your business is a partnership, LLC or an S-Corp, your business can make charitable contributions and pass the deduction on to you, to claim on your individual tax return. If you own a regular C –Corp, the corporation can deduct the contributions.
Giving old office furniture or computers to a school or non-profit may also provide you with a significant benefit because you may deduct the portion that has not already been depreciated.
Taxes incurred in operating your business are typically deductible. The type of tax you pay determines specifically how and when to deduct them. For example:
(i) Sales tax on items you buy for day-to-day operations is deductible as part of the cost of the items. It is not deducted separately, so you do not have to track it separately. Tax on large items, such as a car must be added to the car’s cost bases. The total tax amount is not deducted entirely in the year the car was bought; it is stretched over a period of years.
(ii) Excise and fuel taxes are separately deducted.
(iii) If your business pays employment taxes, the employer’s share is deductible as a business expense. Self-employment tax, however, is paid by individuals not their business and so it is not deductible as a business expense.
(iv) Federal income tax paid on business income is never deductible. State income tax can be deducted on your federal return as an itemized deduction, but not as an expense.
(v) Real estate tax paid on property used for business is deductible, along with any special local assessments for repairs or maintenance. Repairs are deducted immediately, improvements are deducted over a period of years
13. Education expenses
You can deduct education expenses if they are related to your current business, trade or occupation. The education expense you are deducting must be to maintain or improve your skills directly related to your job (e.g. for a Utah lawyer continuing education classes are the most common form of this expense). Education that qualifies you for a job is not deductible.
14. Advertising and Promotion
The cost of ordinary advertising (business cards, ads and so on) is deductible as a current expense. Promotional costs that create exposure and indicate goodwill (sponsoring a football team) are deductible as long as there is a clear connection between the sponsorship and your business (e.g., the team should be named after you, “Utah Attorney Law Dawgs”), or your name is in the program or billboard, etc.
15. Most commonly overlooked business expenses
Some of the most common expenses a business incurs are overlooked. You don’t have to have a receipt to make deductions, although it helps, just keep track of your expenses. In the case of an audit, you should be able to explain and justify each expense. Keeping good records will help you avoid the need to retain a Utah attorney to defend you in an IRS case. Keep track of the following:
(i) Audio recordings related to business skills
(ii) Bank service charges
(iii) Business association dues
(iv) Business gifts
(v) Business related magazines and books
(vi) Casual labor and tips
(vii) Coffee and beverage service
(ix) Consultant fees
(x) Credit bureau fees
(xi) Office supplies
(xii) Online computer services related to business
(xiii) Parking and meters
(xiv) Seminars and trade shows
(xv) Taxi and bus fare
(xvi) Petty cash funds
(xviii) Promotion and publicity
(xix) Casualty and theft losses
A Utah lawyer can help you set up and organize your business, they can also provide business advice and counseling that will help protect and cultivate your business. If you would like to consult with a Utah attorney about your business options, visit our website www.shumwayvan.com or call at 801-216-8885.