| If you are a small business owner, you already know | | | | Remember: keep good records. If you're using your |
| that you will pay a tax on what's left of your income | | | | own personal vehicle for your small business, make |
| after you've booked your expenses. So it's logical to | | | | sure you separate the times you use it for business |
| make sure you have booked as many legal expenses | | | | from the times you do not. Include dates, destinations, |
| as you can. That way your net income (and your | | | | purpose of the travel, etc. Read IRS Publication 463 |
| resulting taxes) will be as small as possible. The IRS | | | | for more info. And here's an important point: if your |
| allows you a pretty wide range of small business tax | | | | employees use a business vehicle while running |
| deductions. | | | | personal errands, for example, you have have to |
| Here is a list of them. Check to see if you have | | | | show this as income to them on their W-2. |
| included these in your tax planning. | | | | A couple of other things to remember: If you bought a |
| 1. Deductions for Start-up Costs | | | | new (or previously owned) car, you can take a |
| In your first year of small business, you are allowed to | | | | write-off. You'll have to decide if it's better to take it in |
| write off as much as $5,000 in start-up costs. In | | | | one single deduction or spread out over a period of |
| addition you can write off an additional $5,000 in | | | | time through depreciation. And if that car is a hybrid, |
| organizational costs. Not only that: you also have the | | | | you might be eligible for a tax credit. Read IRS |
| option of spread out expenses not deducted in the | | | | Publication 8910 for more details. As always, consult |
| first year over a period of 15 years, beginning with | | | | your tax professional for more details. |
| when you opened your business. Eligible costs include | | | | 4. Deductions for Equipment |
| things like market research, company advertising, | | | | You have the ability to take a write-off for small |
| training of your employees, travel for business, legal | | | | business equipment purchases. The write-off can be |
| advice and other costs. Consult your tax professional | | | | pretty large -- in 2006 it amounted to over $100 |
| for more details. | | | | thousand. And the equipment can be used; the only |
| 2. Deductions for Education | | | | requirement is that you use it at least half the time for |
| First stop: IRS Publication 970, "Business Deductions for | | | | your company. Allowable equipment includes things like |
| Work-Related Education." For the most part, you can | | | | computer hardware, machinery, office furniture, |
| write off expenses related to your employees' | | | | automobiles and other related equipment. |
| education if the courses relate to their jobs. | | | | Make sure you read a current copy of IRS Form 4562 |
| In other words, if the course helps them keep pace | | | | before planning your tax strategy on this point. If you |
| with the marketplace demands (or improve their skills) | | | | decide you are not going to claim this write-off |
| or if they need the course to actually keep their | | | | immediately, you can spread it out over a period of |
| existing jobs, then the expense may be a legitimate | | | | years by claiming depreciation on that equipment. |
| deduction. The bad news is that you can't take a | | | | Consult your tax professional for more details. |
| write-off on any expense related to training in a new, | | | | 5. Deductions for Entertainment |
| unrelated field. A couple of other things to remember: | | | | The IRS definition of entertainment is pretty flexible. |
| You can also claim a write-off if you are | | | | Generally speaking, if you attend a business meeting, |
| self-employed. Deductions also include the cost of | | | | for example, and you are not reimbursed for the |
| getting to and from the classes. Consult your tax | | | | expenses, you're allowed to write off up to half the |
| professional for more details. | | | | entertainment expense. They do caution you that the |
| 3. Deductions for Vehicles | | | | "entertainment" must be in a business context. This |
| Be careful here: the rules for deducting automobile | | | | means if you go to a seminar or conference, that's |
| expenses are pretty detailed and the Feds pay close | | | | OK. Also, the entertainment should come immediately |
| attention to anyone claiming these deductions. So, for | | | | before or after the meeting. You get a break if you |
| starters, keep clear and concise records. You can | | | | are self-employed; then, the 50 percent deduction |
| deduct expenses two ways: | | | | cut-off does not pertain to you. Consult your tax |
| The first option is to claim a deduction by counting how | | | | professional for more details. |
| many miles you drove while on business. Currently, you | | | | Conclusion |
| can claim a deduction of 44.5 cents per mile. Check to | | | | There are lots of ways to reduce your small business |
| make sure that is the current amount, as it does | | | | taxes. Generally it involves increasing the number and |
| change occasionally. The other option is to track your | | | | amount of allowable business deductions. Consult your |
| total expenses incurred on things like gasoline, repairs | | | | tax professional for more details. |
| and maintenance. | | | | |