Frequently missed small business tax deductions

On the Money

Your Money

February 18, 2007|By Gail Marksjarvis | Gail Marksjarvis,Chicago Tribune

Whether you are a consultant, piano teacher, contractor or sell makeup part time, you might be able to whittle away some of your taxes if you scour your return for deductions.

Businesses operated out of the home have some avenues for cutting taxes that aren't available to individuals. And if you aren't set up to tap the benefits fully as you prepare this year's tax return, you can position yourself now so you will keep more of your money next year at tax time.

Any expenses for your business in 2006 are deductible - pens and staples, educational expenses, legal fees, bad debts, and business entertainment and travel costs.

Among the deductions small businesses often miss:

Deducting part of your residence.

If you are using a part of your home or apartment to conduct business, you can deduct it.

In fact, even if the business is based in a mobile home or boat, you might be on sound ground, said Stephen Fishman, author of Home Business Tax Deductions: Keep What You Earn.

Within your home, consider office space, a studio, a workshop or garage. But make sure you use the space regularly and exclusively for a trade or business or the Internal Revenue Service will object.

Add up the total square feet in your home and figure the percentage that is devoted to your business. Then deduct a portion of multiple costs - from your rent or mortgage to property taxes and utilities. Use Form 8829 and transfer the information to Schedule C.

Fishman suggests taking photographs for proof.

Auto expenses.

If you are using a car for your business, you can deduct some of the costs.

The easiest approach is to claim 44.5 cents a mile for travel done for business. When doing your taxes for the 2007 year, you will be allowed 48.5 cents a mile. In addition, throw in any tolls you have paid and parking costs.

You will need a record of the miles traveled for each business-related activity.

If you have been meticulous about keeping receipts for everything from gasoline to insurance and lease payments, you might have a better deduction by using actual expenses rather than the mileage deduction.

With this detailed approach, you would also claim depreciation on the car based on the proportion of business use. See Publication 946.

Deduct equipment.

If you purchased equipment for your business in 2006, you might be able to deduct the full cost of everything you paid.

You can deduct in a single year up to $108,000 paid for equipment. Anything from office furniture to computer equipment would count.

Save for retirement.

There is a move you can still make to keep more of your income and pay Uncle Sam less.

You can save for retirement - perhaps financing a $4,000 tax-deductible individual retirement account for both yourself and a spouse, and also putting thousands into a SEP-IRA. That's a retirement account designed for business owners. Depending on your income, you could stash away as much as $44,000 in a SEP-IRA, and shelter it from taxes until you retire. The rules let you put up to 25 percent of your compensation into the account.

When you put money into a SEP-IRA or a tax-deductible IRA, you decrease the amount of income Uncle Sam taxes.

Check IRS.gov for income limits and rules surrounding IRAs, including catch-up provisions that let people over 50 save more.

gmarksjarvistribune.com

Messages for Gail MarksJarvis can be left at 312-222-4264.

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