By: Stephen Fishman
Soutce: Forbes.com
If you're a professional, no one needs to tell you that taxes are one
of your largest expenses. The Internal Revenue Service doesn't make a
point of advertising ways to lower your taxes, and it certainly won't
complain if you don't take all the deductions you're entitled to. In
fact, many professionals miss out on all kinds of deductions every year
simply because they aren't aware of them--or because they neglect to
keep the records necessary to back them up.
Here are the top ten tax deductions that every professional business owner should know about.
1. Business operating expenses.
This includes all your ordinary and necessary business expenses--the
bread-and-butter costs virtually every professional incurs for things
like rent, supplies and salaries. If you don't maintain an inventory or
buy expensive equipment, these day-to-day costs will probably be your
largest category of business expenses--and your largest source of
deductions.
2. Business entertainment. Often,
important business meetings, client contacts and marketing efforts take
place at restaurants, golf courses or sporting events. The tax law
recognizes this and allows professionals to deduct half of the cost of
their business-related entertainment. However, taxpayers have abused
this deduction in the past, so the IRS imposes strict rules limiting
the types and amount of entertainment costs you can deduct.
3. Local travel.
Professionals can deduct the costs of their local transportation
expenses if they are ordinary and necessary for their business. It
makes no difference how you travel--by car, van, SUV, limousine,
motorcycle, taxi, bus or train--or whether the vehicle you use is owned
or leased. But beware: Transportation expenses are a red flag for the
IRS. They are the first item that IRS auditors look at when they
examine small businesses.
4. Long-distance travel. Professionals who travel
overnight for business can deduct their airfare, hotel bills and other
expenses. And if you plan your trip right, you can even mix business
with pleasure and still get a deduction. However, IRS auditors closely
scrutinize this deduction. To avoid unwanted attention, you need to
keep proper records and understand the limitations on this deduction.
5. Long-term assets. A long-term asset is business
property that you reasonably expect to last for more than one year. For
professionals, this typically includes items such as office furniture,
computer equipment, buildings, vehicles, books and medical, dental or
other specialized equipment. There are two basic ways you can deduct
long-term assets: by depreciating them (deducting some of the cost each
year over the asset's useful life) or by using Section 179 of the
Internal Revenue Code to deduct all of the cost in one year.
6. Home office . If,
like many professionals, you regularly work at home, you may be able to
claim the home office deduction. (Sometimes, you can use this deduction
even if you have an outside office where you do the bulk of your work.)
However, if you want to use this deduction, you must learn to do it
properly. There are strict requirements you must follow. How you claim
the deduction will depend in part on what type of business entity you
have.
7. Outside office. The great majority of professionals
have outside offices where they do their work. An outside office--that
you rent or own--presents many opportunities for tax deductions.
Virtually all your outside office expenses are deductible, including
rent, utilities, insurance, repairs, improvements and maintenance.
8. Health insurance. As business owners, professionals
have an advantage that most others don't have with regard to health
care costs--they can deduct many of their health insurance costs from
their taxes. In addition, professionals can deduct a wide variety of
uninsured medical expenses, including nonprescription medications,
acupuncture and eyeglasses.
9. Retirement plans. When it comes to saving for
retirement, professional small-business owners are better off than
employees of most companies, because the federal government allows
small businesses to set up retirement accounts specifically designed
for small-business owners. These accounts provide enormous tax benefits
that are intended to maximize the amount of money you can put away in
tax-deferred accounts during your working years.
10. Hiring workers. You may deduct most or all of what
you pay someone you hire as a business expense. Thus, for example, if
you pay an employee $50,000 per year in salary and benefits, you'll
ordinarily get a $50,000 tax deduction. If you hire an independent
contractor to perform services for your practice, you can deduct the
amount you pay as a business operating expense. |
