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10 Tax Deductions Small Business Owners Can’t Afford to Overlook

1. Auto expenses. If you use your car in your business, you may be able to depreciate the costs of owning it and deduct the cost of operating and maintaining it. There are two methods for claiming business-related automobile expenses. You may deduct the business portion of actual expenses you incur, such as the cost of gas and oil, insurance, license and registration fees, repairs, tires, tolls, and parking. Or you can keep track of the business miles you drive, and multiply your total by the IRS standard mileage rate.

2. Home office. To qualify for a home office deduction, you must use your home office on both an exclusive and regular basis as your principal place of business or as a place of business to meet with clients. If you qualify, you may deduct depreciation allocated to your business use of the area in your home and other indirect expenses of operating your home office. You may also claim this deduction if your home office is the only place for conducting the administrative or management activities of your business or if only minimal administrative work is done outside your home office. You can use Safe Harbor method – maximum deduction of $1,500 ($5/sq ft, up to 300 feet). 

3. Legal and professional fees. Fees you pay lawyers, consultants, CPAs or other tax professionals generally can be deducted in the year incurred.

4. Business meals and entertainment expenses. When you entertain present or prospective customers, you may deduct 50 percent of the related cost if it is “directly related” to the business and business is discussed, or “associated with” the business and the entertainment takes place immediately before or after a business discussion.

5. Travel expenses. When you travel for business, you can deduct the cost of plane fare, taxis, lodging, and 50 percent of meals and entertainment costs. Other expenses qualify as well, such as the cost of dry cleaning, telephone calls, and computer rental fees.

6. New equipment. For tax years beginning in 2015, Section 179 of the Internal Revenue Code allows you to deduct up to $500,000 of the cost of new equipment or other assets. New assets may also be eligible for 50 percent bonus depreciation. 

7. Health insurance premiums. Self-employed individuals can deduct as an adjustment to gross income 100 percent of health insurance premiums. The deduction cannot exceed net earned income derived from the trade or business. 

8. Bad debts. You may also claim a deduction for a business debt related to accounts or notes receivable if you included the amount owed in your gross income for the year you are claiming the deduction, or included it in a prior year. If you use the cash basis method of accounting, you cannot claim a bad debt deduction if someone fails to pay you for your services.

9. Retirement plan contributions. Putting funds in a retirement plan such as a Keogh or a SEP plan reduces your taxable income and helps to ensure a secure retirement. If you've already set up a Keogh retirement plan, to qualify for a deduction you must make your contribution at any time up to the due date of your return, including any extensions. If you missed the deadline for setting up a Keogh plan, consider a Simplified Employee Pension (SEP) Plan. You have until the due date of your return (including any properly filed extensions) to set up and make a deductible contribution to an SEP.

10. Interest payments. If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible. This shouldn’t be an incentive to go into debt, but can help offset the cost of loans you may need to grow your business.

CPAs say it’s very important to keep good records in order to substantiate your expenses and deductions in the event of an IRS audit.