What are some commonly missed deductions for business owners?

By Denise Appleby AAA
A:

If you own a business, you are eligible to deduct certain business-related expenses. These include deductions for the following:

  • Home office: If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home.

    Deductible expenses include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation. You want to be very careful here - as the exclusive and regular rule is strict. For instance, if you conduct business in your basement but you also use it as a recreation area for your family, you may not be able to treat it as a home-office for tax deduction purposes.


  • Retirement Plan Costs: If you own a small-business and recently established a retirement plan for the business, you may be eligible to receive a non-refundable tax credit for expenses you incurred to implement the plan. The tax credit may be claimed for a maximum period of three years for retirement plans established after 2001. To be eligible for the credit, you must have no more than 100 employees who earned at least $5,000 in the previous year.


  • Retirement Plan Contributions: If you make contributions to retirement plans, such as a SIMPLE IRA, SEP IRA or qualified plan, you will be able to deduct the contributions, providing they are within the statutory limits. If you are unincorporated, your contributions are based on your modified net profit.

Other deductible business expenses include the cost you pay for advertising, liability insurance, certain vehicle expenses, wages, legal expenses and expenses for professional services. To ensure that you receive the maximum permissible deductions, ensure that the person who prepares the tax return for your business is proficient in that area. Not everyone who can prepare a tax return for an individual can apply the same level of proficiency to a business' tax return.

To read more frequently asked tax questions, see How do I avoid paying excess taxes on securities I have sold?, How can I make sure I'm ready to file my taxes?, Common Tax Questions Answered and How can I make sure I get all my eligible deductions?

Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

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