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. 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 >>
Related Articles
  1. Taxes

    Top Tax Deductions For Brokers

    If you are paying out of pocket, you can make your business expenses work for you at tax time.
  2. Taxes

    The Most Overlooked Tax Deductions

    The receipts you cram into your wallet could be replaced with cash come tax season.
  3. Taxes

    5 Expenses You Want to Be Deductible But Aren't

    Here are five expenses that many taxpayers often try to claim only to find out that their deductions are denied.
  4. Taxes

    Why You Should Itemize Your Tax Deductions

    This strategy of moving your tax deductable payments and donations to the following year could mean hundreds more on your return.
  5. Taxes

    How To Claim Home Office Expenses

    There are many factors to determine what home office deductions can be made towards your small business. Planning ensures high deductions.
  6. Taxes

    Top 10 Home Business Tax Tips

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

    How To Get The Most Money Back On Your Tax Return

    These tips will help you get a larger refund this year, while teaching you how to pay less taxes going forward.
  8. Taxes

    How To Qualify For The Home-Office Tax Deduction

    Homebodies can save big on their tax bill. Learn how to get in on the action.
  9. Taxes

    5 Little-Known Tax Deductions And Credits

    Declaring noncash donations and volunteer work expenditures are just some of the lesser-known ways to reduce your taxes.
  10. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
RELATED TERMS
  1. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  2. IRS Publication 587: Business Use of Your Home (Including Use by Day-Care Providers)

    A document published by the Internal Revenue Service (IRS) that ...
  3. Above The Line Deduction

    Above the line deductions are certain types of deductions that ...
  4. Interest Deduction

    A deduction for taxpayers who pay certain types of interest. ...
  5. Home Office Expense

    Expenses incurred from the operation of a business or the performance ...
  6. IRS Publication 936

    A document published by the Internal Revenue Service (IRS) that ...
Hot Definitions
  1. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  2. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  3. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  4. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
Trading Center