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Micky Gramlin   My Press Releases

Top 20 Tax Deductions for Small Business by Barbara Weltman Part 2

Published on 5/26/2019
For additional information  Click Here

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Top 20 Tax Deductions for Small Business

Part 2

Published

smallbiztrends.com

by Barbara Weltman

 

With the explosion of home businesses expected, an audit from the IRS is more than likely going to grow as well and no matter how well you keep records, an audit is stress in capital letters. Here are the last 10 deductions listed of the 20. Micky G

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Deductible business expenses help entrepreneurs with many of the costs of running a company. Business owners know that most expenditures can be written off, although there may be limits and timing issues. So what are the most common tax deductions for small business?

 

  1. Commissions and fees. They are fully deductible and may require you to report them on Form 1099-MISC (see item #3). However, commissions paid in connection with buying realty are not deductible; they are added to the basis of the property and usually are recovered through depreciation.
  2. Travel. If you or staff members travel out of town on business, the cost of transportation (e.g., airfare) and lodging is fully deductible. You must meet substantiation requirements explained in IRS Publication 463 to claim any travel deduction. However, local commuting costs usually are nondeductible.
  3. Advertising. Ordinary advertising costs are fully deductible.
  4. Home office. A portion of personal expenses of a home are deductible as a business expense if the home is used regularly and exclusively as the principal place of business, a place to meet or deal with clients or customers, or as a separate structure used in the business. The deduction includes both direct costs (e.g., painting a home office) and indirect costs (e.g., the percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence).
  1. Legal and professional fees. Legal and accounting fees are fully deductible.
  2. Meals. These costs are deductible business expenses only up to 50% although there are some meal costs that are fully deductible. Thus, a business lunch is half on you and half on Uncle Sam. And the deduction can only be claimed if you substantiate the expense (see IRS Publication 463).
  3. Rent on machinery and equipment. Fees paid to lease or rent items used in your business are fully deductible.
  4. Interest on business indebtedness. Interest on loans that the business takes usually is fully deductible as a business expense (e.g., interest on a line of credit used in a construction business). However, for 2018, businesses with average annual gross receipts in the three prior years of more than $25 million ($26 million in 2019) are limited in the percentage of interest that’s deductible. And interest on loans by owners to buy their businesses are treated differently.

 

 

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Distinguish business interest from an owner’s investment interest or passive activity interest, which is not a business deduction. For example, an individual who takes a personal loan to buy shares in an S corporation must allocate the debt proceeds to the business assets.

If the assets are all used in the business, then the owner’s interest is deductible business interest. If some assets are investments, then a portion of the interest is investment interest, which is a personal deduction limited to the extent of net investment income.

If some assets relate to a passive activity, such as rental realty, the allocable interest is passive activity interest subject to the passive activity loss limitation.

  1. Employee benefit programs and qualified retirement plans. The cost of employee benefit programs, such as education assistance and dependent care assistance, as well as contributions to employees’ qualified retirement plan accounts, is deductible.

For self-employed individuals, contributions to their own qualified retirement plan accounts are personal deductions claimed on Form 1040.

  1. Mortgage interest. Businesses that own realty can fully deduct mortgage interest. Unlike interest on a personal residence, there is no cap on the size of loans on which interest can be claimed.

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QBI Deduction

For 2018 through 2025, there is a personal deduction based on business income for owners of pass-through entities. The qualified business income (QBI) deduction will help to lower the effective tax rate paid on business profits on owners’ personal returns. The deduction is 20% of QBI. But there are many limits that may restrict or bar eligibility to claim any write-off.

Deductible Business Expenses

Determine which of these 20 tax deductions for small business you can take on your 2018 business return. Also, project which items you need to take into account for 2019 estimated taxes. Discuss your situation with your CPA or other tax advisors to make sure you have done all that is required to qualify for a specific deduction.

 

Thank you for stopping by!

Micky Gramlin

mickygramlin@codeblueforbusiness.ws

 

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Barbara Weltman  Barbara Weltman is the Tax Columnist for Small Business Trends. She is an attorney and author of J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and is a trusted professional advocate for small businesses and entrepreneurs.

 

 

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