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Tax Deductions
for Small Business Barbara Weltman
n Wall Street, there’s a saying that past performance is no guarantee of 2 Salaries & Wages future results. When it comes to taxes, howWhile payments that sole proprietors, ever, past performance is a great indicator partners, and LLC members take from of the types of deductions that businesses the business are not salaries (they are typically take each year. nondeductible draws), payments to employees are deductible. Last winter the IRS released data on Schedule C filers. Here are some of the most popular tax deductions for small business that were claimed by sole propri- 3 Contract Labor etors as determined by the dollar amounts, Many small businesses use indepenstarting with the largest category. The same dent contractors to meet their labor types of deductions can be claimed by other needs. The cost of such contract labor entities—C corporations, S corporations, is deductible. Be sure that you issue partnerships, and limited liability compa- Form 1099-MISC to any such contracnies (LLCs) (although there may be slightly tor receiving $600 or more from you in different rules for some deductions). See 2015 (if payment is made to the contracwhich of these tax deductions for small tor via credit card or PayPal, it’s up to the business apply for your tax return. processor to issue them Form 1099-K, but you may want to send your own 1099-MISC for personal protection).
1 Car & Truck Expenses Most small businesses use a vehicle, such as a car, light truck or van. The cost of operating the vehicle for business is deductible only if there are required records to prove business usage. In deducting costs, the need to keep records of cost (e.g., gasoline, oil changes) is eliminated if you rely on the IRS standard mileage rate of 57.5 cents per mile in 2015 instead of deducting your actual outlays. 8
AT HOME IN BERKs April 2016
4 Rent on Business Property
The cost of renting space—an office, storefront, factory, or other type of facility—is fully deductible.
buying property for your business. It includes the Section 179 deduction for equipment purchases up to $500,000. It also includes 50 percent bonus depreciation.
6 Supplies
Items used in a business (e.g., cleaning supplies for a cleaning service) are fully deductible.
7 Utilities
Electricity for your facility is fully deductible. Other utility costs include your cell phone charges. If you claim a home office deduction, the cost of the first landline to your home is not deductible. If you have a second line, it is a deductible utility cost.
8 Taxes
Deduct state and local sales tax you charge on your goods and services; the amount you collect from your customers is part of your gross receipts, so this deduction is merely a wash. You can also deduct licenses and regulatory fees and taxes on real estate 5 Depreciation This tax deduction for small busi- and personal property. Your employer ness is an allowance for the cost of taxes, including the employer share of