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Commonly Missed Tax Deductions
If you put a price tag on the amount of money it costs to get a small business off the ground, the tag would probably be too small to fit all the numbers. This is because diving into business ownership can be an extremely expensive proposition. But there is some good news. The IRS does offer entrepreneurs and startup owners some much-needed financial relief in the form of tax write-offs. The following 5 small business tax deductions are often overlooked and go unclaimed in many instances. Being aware of them can help you hang on to a larger piece of your income:
Deducting vehicle costs you incur as a self-employed professional or a small business owner can reduce your hefty tax bill. To be eligible to claim this deduction, you must use your vehicle to go from your home office or a separate place of employment to a different area for business reasons. There are two options to choose from when claiming this write-off – either total mileage driven or actual vehicle expenses. The standard mileage rate for 2014 is 56 cents per mile. What this means is that you can claim this amount for every mile you drive your vehicle for business purposes. If you choose to use the actual expenses option instead, you can typically include gas, tolls, maintenance, and insurance when calculating your deductible amount. It’s important to take a close look at both deduction methods to determine which one will benefit you most in terms of tax savings.
The Home Office Deduction
If you are one of the many entrepreneurs out there who does some type of work from home and use an area of your home for these tasks, you may be allowed to claim the home office deduction. In basic terms, you would be eligible to deduct a specific percentage of the costs you incur that are necessary for doing business in your residence. Expenses you can write off include mortgage interest, insurance, rent, electric, water, home repairs, and even Internet access. Be mindful that these costs must be specifically associated with business activities you do from home. Plus, they need to be part of a room or space in your home that you designate for business activities. In 2013, the IRS enacted a simpler, flat-rate alternative to calculating the home office deduction. This newer option lets small business owners write off $5 per square foot for up to 300 square feet of office space in a home. But, like most deductions, there is a maximum deduction limit. In this case, it’s $1,500.
Medical Cost Deductions
Medical expenses and health insurance premiums are normally eligible for a tax write-off for formally established small business owners and self-employed professionals who may work as independent contractors. If you have a self-insured medical reimbursement plan, you may be able to deduct up to 100% of your out-of-pocket costs for medical care. Medical expenses you incur for a spouse or a dependent are eligible for this deduction under most circumstances.
Meals & Entertainment Deductions
One of the more popular yet often overlooked tax deductions for small business owners revolves around costs spent on meals and entertainment. Based on IRS guidelines, meals and entertainment activities have to be considered “ordinary and necessary.” They must be directly related to doing business in some capacity. For example, let’s say you meet with your business partner, a potential investor, or a current client to shoot the breeze with about something related to your business while enjoying a delectable Italian dinner. You can write off 50% of the tab as a business deduction. Be sure to hang on to all of your restaurant receipts, and write down the names of everyone involved in a meal, along with the business that was conducted. The same rules apply to entertainment events during which some type of business is discussed.
Deducting Contributions to Qualified Charities
Although it is not specifically considered a business tax deduction, any non-cash contributions made to qualified charities can be a tax-saving write-off for individuals and business owners alike. The value of certain items like clothes, furniture, and household items is 100% tax deductible in most cases. Many charities also accept used vehicles that meet certain standards, which you can claim as a deduction as well. Keep any receipts or handwritten acknowledgements you get for these donations from an organization. The IRS wants to see proof of your charitable contribution for it to be considered a legitimate write-off.