Small Business Tax Write-Offs That Are Overlooked
- In computing business deductions it is important to distinguish personal expenses from business related expenses. For instance, in computing the allowable deduction for mileage or automobile costs, a business owner must separate personal trips from business meetings. If a trip away from home involved both business and a personal vacation, the business owner must follow IRS-mandated guidelines to separate allowable deductions from the rest of the cost of the trip. Clothing is almost never deductible unless the expense is for a uniform or related accessories which are worn exclusively on the job.
- Many business owners are aware that equipment such as computers are deductible business expenses. However, fewer business owners and entrepreneurs are aware that business-related publications are also tax deductible. Business related books and magazines qualify for the deduction. Magazines may be purchased individually or by subscription. The important point is to save all receipts to ensure accurate calculations for the tax deduction.
- Many small business owners avoid taking the home office deduction because they fear being audited. This is especially true when the business owner does not have an entire room in her home exclusively dedicated to the business. However, the IRS does not require an entire room to be devoted to business dealings in order for the home office deduction to be valid. If the business owner devotes a desk or any space exclusively for business, the deduction is valid. The small business owner only needs to measure the square footage of the space devoted to the business and compute the percentage it occupies of her total living space. All the expenses related to that percentage of living space -- rent or mortgage, electricity, heat, water -- may legitimately be included in the home office deduction.
- For a sole proprietor who has not incorporated his business, health insurance premiums are fully tax deductible. The deduction is not available for business owners of corporations because the corporation, rather than the individual is considered the legal entity for tax purposes. The deduction is also not available for business owners who are eligible to be covered by a group policy, for instance, on a spouse's insurance policy. On the other hand, if a spouse worked for the small business, the spouse's insurance premiums are fully tax deductible.
- The salary for children who work for a sole proprietorship or a partnership made up only of two spouses may be deductible as a business expense. Depending on how much they make, the children may be exempt from income tax. In addition, the business owner need not pay Social Security tax for children younger than 17. Additional tax benefits are available for a Roth IRA opened in the name of the child. Like the insurance tax deductible, this tax deduction is not available for business owners of incorporated businesses or partnerships involving persons other than a spouse.