You worked all year for your revenue. Now be sure you get all tax deductions you’re entitled to, so you can keep as much of it as you can after taxes.
When it comes to his clients, tax attorney Jeff Jacobs of EisnerAmper LLP tells Small Business Trends in a phone interview it isn’t always about how much a business can save.
“Sometimes it’s not the money. Sometimes it’s the principal of the thing,” Jacobs says.
Small business owners may be willing to pay their fair share, but that extra represents money you have already invested in your business. And money you could reinvest to make it grow — if you get to keep it, that is.
What Qualifies As A Tax Deduction
So what qualifies as a tax deduction?
“It all comes down to applying IRS Code Section 162, which provides the general structure for determining whether or not an expense is deductible for tax purposes,” says Kevin Busch, president of CFOToday.
CFOToday is a national accounting franchise specializing in small business finance and taxes.
To qualify, Busch says expenses must fall into one of five broad categories:
- The expense must be an ordinary part of doing business.
- The expense must be necessary.
- It must be an actual business expense.
- It must have been incurred and paid during the tax year.
- It must be connected to trade or business.
Because of the way these rules are generally interpreted by the Internal Revenue Service, Busch says some expenses may be only partially covered. One example is in the case of meals and entertainment.
“These are tax deductible if these items are for entertaining clients or developing prospects into clients. However, only 50 percent of these costs are deductible, applying the principle that these are ordinary and necessary,” Busch explains. “And that they meet the ‘reasonableness’ standard-thus the 50 percent deduction limit.”
Many Deductions Go Overlooked
Still many deductions go overlooked and unclaimed by businesses that are entitled to them, says Tyler Thompson in an email interview with Small Business Trends.
Thompson is Vice President of Business Development for Deductr, a company with a solution designed to track, monitor and even receive tax deductions for independent business owners.
The company claims seven out of nine taxpayers overpay every year.
Among often overlooked tax deductions are startup costs, says Thompson.
“You can deduct up to $5,000 of the startup costs you incurred before you began operations in the first year of your business,” he explains. “For anything over $5,000, they can be amortized over a 15-year period.”
Jacobs gives an example of how such simple deductions can be overlooked.
“What about the cost of training your staff?” Jacobs explains. “Imagine you’re opening a retail business. You invite your newly hired staff to join you for a day of training. You’ve rented a hotel room. You pay to have a meal brought in and pay them for a day’s work just to go over things with them.”
Other often overlooked deductions include home office expenses, auto expense or mileage, bad debts and health insurance premiums, said Thompson. Though many of these expenses are at least partially deductible, many small busainesses don’t do so, he said.
Keep Adequate Records
One major consideration, says Thompson and Jacobson, is the need to keep adequate records of expenses when filing for business deductions.
“The tax law requires very specific substantiation for travel and entertainment expenses, which are spelled out in IRS Publication 463,” says Barbara Weltman, President of Big Ideas for Small Business Inc. and author of “J.K. Lasser’s Small Business Taxes 2015: Your Complete Guide to a Better Bottom Line.”
“If the IRS questions a return and the taxpayer can’t produce these records, otherwise legitimate deductions can be disallowed,” Weltman explains. “For example, if you use your personal car for business driving and don’t have a record of business trips (date, distance, purchase of the trip) in a written diary, app, or other record made at the time of the driving, car-related write-offs likely will be lost.”
What to Do If a Deduction is Disallowed
If the IRS were to disallow a claimed deduction, Jacobs says this would make the business owner liable for the back taxes that had not been paid.
Business owners have the option to appeal such decisions through the IRS Office of Appeals. Failing to get a favorable decision here, small business owners can also pursue remedy through the U.S. Tax Court.
Disallowed deductions need be for a vast sum in order to be challenged, either, Jacobs insists. He says the court has an entire division set aside to hear claims of $25,000 or less.
Tax Prep Photo via Shutterstock
This article, “How to Get All Available Tax Deductions” was first published on Small Business Trends
from Blogger http://evangelinagius.blogspot.com/2015/03/how-to-get-all-available-tax-deductions_24.html
Evangelina Gius 