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Tax Deductions for Businesses PDF
September 29, 2005 -- Lone Peak Business Solutions Offers 10 Tax Deductions for Businesses

As the end of the year rapidly approaches, it is a good time to take a look at our businesses and make sure we are taking advantage of all the deductions we can. There is nothing worse than preparing Income Taxes and finding that there were many deductions we didn’t keep track of.

For every dollar you don’t deduct, you could be paying up to 35% back to Uncle Sam. If the dollar has been spent, taxes shouldn’t have to be paid on it.

Most business owners remember to take the big obvious deductions such as cost of goods sold, materials, tools, supplies, and employee expenses. But often times it is the small seemingly insignificant deductions that can make or break a company. Lone Peak Business Solutions has the 10 most commonly missed business deductions.

Items such as paper clips, bank charges, credit card charges and home office expense seem small and unimportant at the time, but multiply those little things over a year or two and then multiply it times 35% and it can add up to quite a bit of money that should be in your pocket rather than in the government’s pocket.

Kathy Anderson, President of Lone Peak Business Solutions, says, It is vital for the success of every business to know what expenses to keep track of, carefully record those expenses, and then evaluate those expenses on a regular basis. Many companies wait until tax time to add up receipts and then wonder where all the money went.

Evaluating income and expenses on at least a quarterly basis gives you the big picture. It allows you to determine if too much is being spent any one place. It allows you to determine if all the deductions that can be are being claimed. It allows you to determine how to better increase sales and decrease costs.

Here is a list of the top ten commonly missed tax deductions and some suggestions on the best way to keep track of them:

1. Vehicle Expense: Vehicle expense is the most confusing of all expenses. There are basically three ways to claim these. First is mileage: keeping track of how many miles you drive for business purposes by keeping a log in your vehicle. Second is actual expenses: keeping track of everything it costs you to operate your vehicle and the percent you use it for business. This include gas, repairs, insurance, interest on loans, car washes, etc. The third way is by car allowance. If your company is incorporated, the company can reimburse you for vehicle expenses by way of a car allowance. This is not taxable to you but is tax deductible to the company.

2. Home Office: If you have an office in your home that you conduct business from, you can deduct a percentage of your mortgage interest, property taxes, utilities, repairs, and insurance that you pay on your home. To be a home office, you have to have a separate room. You can not use part of a living room or kitchen.

3. Paying your Children: You can pay your minor children to do things for you in your business. You must keep track of what they do and how much you pay them - especially if you pay them cash. The job must be according to their age and ability and you can not pay them unreasonable amounts. This is however, a great way for children to earn their own designer jeans or extra curricular school activities.

4. Bank Charges: Bank charges are very commonly missed. Many banks offer free checking and so we often miss the charges that occasionally do arise. Check each statement as it comes and don’t forget checks that are ordered and deducted from your account.

5. Credit Card Charges: If you don’t pay off your credit card every month, you are charged interest or a finance charge. Some cards also have an annual fee. These fees are all deductible if the card is used for business.

6. Uniforms and cleaning: A uniform is clothing that is worn for business that isn’t worn at any other time (such as coveralls, steel toed boots, etc) or clothing that has a company name and/or logo. The purchase and cleaning of this clothing can be deducted as well.

7. Meals and Entertainment: Meals include taking clients, potential clients, and business associates out for a meal. It is wise to jot down on the receipt who the meal was with and what subject was discusses. Entertainment can include can tickets to a sporting event or performance, golfing, etc. Once again keep track of who you went with and why.

8. Loans and interest: Often businesses get loans for various reasons. It is important to remember that a loan is not considered income and there for should not be added in as such. However, the interest paid on any business loan is tax deductible. Many banks do not send out that information anymore at the end of the year, but if you give them a call they will give you the information most often over the phone.

9. Wages vs Contract Labor: Paying employees can be very costly by the time you match taxes, provide workers compensation insurance and unemployment. If you have employees that come to your place of business on certain days for certain hours and do what you tell them to do, you must pay them and with hold taxes etc. But if you pay an individual on a job by job basis and they are not required to come to your place of business on a regular basis, you may be able to pay them as contract labor. A person who receives payment as contract labor takes care of his/her own taxes. A form 1099 is issued at the end of the year instead of a form W2.

10. Office Supplies: This is where many businesses fall short. It is the box of paper clips or package of pens that seem like nothing. These small things can add up to a lot at the end of the year. Office supplies include pens, pencils, paper clips, staples, paper, ink/toner cartridges, calculators, tape scissors, planners, postage stamps, rubber stamps, computer supplies, envelopes, file folders, sticky notes, and anything else you use in your office.