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

RELATED FAQS

  1. What are examples of cost of goods sold (COGS) for businesses that sell through eBay ...

    Read how online retailers that operate through eBay or Etsy can list certain expenses as cost of goods sold and even claim ...
  2. How is an SBO-401(k) set up?

    Learn what a Small Business Owner 401(k) plan is and who is eligible to establish one. Find out what the IRS requires of ...
  3. Can I invest my IRA in an entity, business or LLC?

    Explore different types of businesses, entities, corporations and limited liability companies, and the types IRA-eligible ...
  4. How does a Simplified Employee Pension (SEP) plan work?

    Learn how small businesses and their employees benefit from a Simplified Employee Pension, or SEP, IRA, and discover how ...
RELATED TERMS
  1. Working Tax Credit (WTC)

    A tax credit offered to low-income individuals working in the ...
  2. Cottage Industry

    A small-scale industry often operated out of a home, rather than ...
  3. Peter Pan Syndrome

    A regulatory environment in which firms prefer to stay small ...
  4. SIMPLE IRA

    A retirement plan that can be used by most small businesses with ...
  5. Jumpstart Our Business Startups Act - JOBS

    An act signed into law on April 5, 2012 that allays the regulations ...
  6. Assembly Service

    Combining a number of small shipments from multiple parties into ...

You May Also Like

Related Articles
  1. Investing News

    Looking to Open a Franchise? These Topped ...

  2. Year-end tax tips
    Taxes

    7 Ways To Minimize Your 2014 Taxes By ...

  3. How do you figure out which franchise is the best for you and your budget? Read on.
    Investing Basics

    What's The Best Franchise Investment ...

  4. Top things to do if you are a fist time home buyer.
    Home & Auto

    10 Steps For First-Time Home Buyers

  5. Do you have the right mix of credit, capital and business savvy to make you an ideal candidate for buying a franchise?
    Investing Basics

    When Is A Franchise The Right Investment ...

Trading Center