Small businesses have a huge challenge ahead of them at tax time. Balancing what can be deducted and what cannot be deducted takes careful record keeping and cautious apprehension at times. It even means knowing how your small business is defined. Is it a sole proprietor, DBA or LLC? This can determine the path you go when filing because in some cases you can file as part of your personal income taxes but if you can’t it may mean more complicated processes.
Start out by looking at if you are small enough that you will file as a part of your standard individual Tax form. Once you have made the determination of how your small business will be handled you can look at deductions.
Anything that is devoted 100% to your business can be defined as business assets and some of those assets are subject to itemizing depreciation values. The IRS has full information on this at their website because the rules can change from year to year.
If you use your car or a vehicle your best path is to keep track of your mileage on that vehicle as you use it and then take the mileage deduction.
You can deduct a home office by calculating the portion of the house as a whole be careful because it is based on the actual area used only.
If you have special clothes, equipment, and supplies that are only for the business they are deductible but again you will want to check the IRS website to monitor any changes.
Any time you make a trip SOLEY for business the costs are deductible. Document everything and be aware there are limits to this.
Overall if it is an expense for the benefit of the business it is most likely deductible. It is best however to document every expense in case you are audited. Be very careful not to mix Business and Personal expense up.
The basic rule of thumb for small business is that deductible Expenses generally have to be ordinary and necessary to continue operation. Expenses that are deductible do not have to be indispensable to be necessary. For example if you meet with a client over lunch, the lunch is deductible even though you could have met with the client in the office.
Do not miss business expenses such as payroll, Retirement Plans, Rental costs as long as you are not getting title/ ownership of what you are renting, Loan interest, Some Taxes and Insurances.
The IRS has a Publication detailing this information further called ‘Business Expenses’ and referenced by the number 535.