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. Can I deduct my IRA contribution if I don't have an employer plan, I’m single and ...

    You say no, but I'm wondering if it's a typo. Here is what you say: "If you or your spouse do not participate ... Read Answer >>
  2. After separating from prior employers in the first quarter of 2015, are we able to ...

    My wife and I separated from our prior employers in the first quarter of 2015. We were covered under t... Read Answer >>
  3. How can I make sure I get all my eligible deductions?

    Most tax preparation software does a good job. However, like any recipe, the end results are only as good as what goes into ... Read Answer >>
  4. How can I make sure I'm ready to file my taxes?

    Whether you file your return yourself, or have it done by a tax professional, you want to make sure you include all your ... Read Answer >>
  5. Can I use my social security or my pension to reduce income on my taxes?

  6. Which is better for tax deductions, itemization or a standard deduction?

    Each deduction that you claim may result in a decrease in the amount of taxes that you owe. However, whether you receive ... Read Answer >>
Related Articles
  1. Personal Finance

    Top Tax Advantages of Buying a Home

    Don't forget these deductions and credits that homeowners can use to reduce their tax bill.
  2. Financial Advisor

    5 Overlooked Tax Deductions for Small Businesses

    It's easy for small business owners to miss a few tax write-offs. Here's where to find them.
  3. Personal Finance

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
  4. Personal Finance

    Top 10 Home Business Tax Tips

    If you work for yourself, make sure you are getting the most for your tax dollars.
  5. Retirement

    3 Little-Known Ways to Reduce Your Income Tax

    Looking to pay less income tax? Here are three lesser known ways to do so.
  6. Financial Advisor

    Don't Miss These Tax Deductions

    Knowing the tax deductions you're entitled to can make or break your bank account. Do you know about all these insurance-related deductions?
  7. Personal Finance

    7 Commonly Overlooked Tax Deductions

    Don't pay more taxes than you have to because you've missed taking legitimate tax deductions. Here are just a few you may have overlooked.
  8. Personal Finance

    8 Tax Benefits For The Self-Employed

    Profitability in business depends on minimizing costs and maximizing resources. Here are several tax benefits that are available for the self-employed.
  9. Investing

    Business Taxes: Not Paying More Than You Have To

    If you're a small business owner, note these potential tax deductibles so that you don't pay taxes that could have been extra revenue in your account.
  10. Personal Finance

    How To Get The Most Out Of Hiring An Accountant

    When you hire an accountant, getting good tax advice going forward is as valuable as – or perhaps even more valuable than - getting the previous year’s taxes filed correctly. Learn what you need ...
RELATED TERMS
  1. Deductible

    1. The amount you have to pay out-of-pocket for expenses before ...
  2. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  3. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  4. Tax Deduction

    A deduction from gross income that arises due to various types ...
  5. IRS Publication 535 - Business Expenses

    A document published by the Internal Revenue Service (IRS) that ...
  6. Schedule A

    Schedule A is a U.S. income tax form that is used by taxpayers ...
Trading Center