Business Expenses
In general, the IRS Code No. 162 allows deductions for all necessary and ordinary expenses your you incur while carrying on business transactions for the purpose of earning income. Following is a list of the most prevalent expenses.
Car Expenses
You must keep a daily log to claim this expense. There are two methods used to calculate expenses: 1. mileage – multiply miles by 36.5 cents. 2. actual – gas + repairs + depreciation multiplied by the percentage of business use of the car. Compute both methods and use the one that is more beneficial to you.
Entertainment
The IRS allows [a deduction of] only 50% of expenses incurred to entertain clients. You may take clients to sports, music and other entertaining events, wine and dine them, or invite them to a backyard bar-b-que and deduct half of your cost. If however, you arrange a picnic, party, or other social event for your client and their families, the expenses are 100% deductible.
Supplies and Equipment
Office supplies, rent, and utilities can be totally deducted from [your annual] incomeyearly. Items that have a lifetime greater than one year, such as computers, desks, copiers, or a car have to be written off gradually, over the life of the item. This is called depreciation and you can find the exact number of years to use for a particular item: 3, 5 or 7.
***** Also, the government decided to add a nice incentive for capital expenditures called Section 179. This allows you to deduct the full price of your purchase in the year purchased. You may deduct no more than $24,000, but can depreciate the balance. This allows a greater expense deduction and alleviates the burden of startup costs.
Business Trips
You may deduct 100% of your expenses for business trips (conferences, trade shows, affiliate meetings, etc). If you choose to take your family you may not deduct additional expenditures (airfare, meals, lodging, and entertainment). Take them in your car, even rental, let them stay in your hotel room and that cost is 100% deductible as there is no additional cost for these expenses. Home – Office
This is an area the IRS has become increasingly strict about. You need to keep detailed records and have a definite and exclusive allotted space for your office (no TV or other non-business frills). You will need the exact measurements for the entire structure and the office space to calculate the deduction. Add the total expenses (include insurance) and multiply by the % of space used for your office. Also, be aware that mortgage interest, real estate taxes are taken as personal deductions when you itemize so do not use them for business expenses.
Internet Expenses
You may deduct expenses incurred to purchase and maintain your website, domain name, membership fees for affiliate programs, search engine submissions, advertising, and all necessary and usual expenses for the success of your business.
Be Sure to Include
1. education 5. loans
2. fees 6. carrying charges
3. charitable contributions 7. taxes
4. bad debts 8. interest
Additional Routine Deductions
e-books – audio, video tapes banking services – fees for transacting business business associations – IAHBE business gifts – gifting, purchase to give away credit bureau parking and meters petty cash
Maxine Meade is the publisher of Ezine2Taxes. She is a retired schoolteacher
now involved in internet marketing. She also has an Associates Degree in
Accounting and a Certificate in Tax Accounting.
