What Can a Small Business Owner Deduct From Them?

Everyone wants the maximum possible deduction on your taxes, but this proves especially important to small business owners because they must pay their own payroll taxes and taxes can cut into already thin profit margins. Determining what a small business owner can often trips up new entrepreneurs as taxpayers can easily confuse deductible and non-deductible expenses, according to the U.S. Small Business Administration.

Types
Small business owners must differentiate between business expenses and capital expenses--capital expenses are not deductible, according to the SBA. Capital expenses are those in which you acquire assets, such as land or lawn care equipment for a landscaper. Business expenses are incurred because you run a business, such as travel costs related to doing business.

Considerations
If you have business expenses to deduct, you must make sure that they are normal for your industry and a true cost of doing business, according to the Internal Revenue Service. In addition, you must cleave your business and personal expenses. If you take a loan, for example, to start your business, you can only consider the percentage of the loan used for real business expenses minus personal use, such as for a vacation.

Misconceptions
One of the most desired deductions, and one that could cause problems, is the home office deduction. Just taking the home office deduction does increase your chances of receiving an audit, according to tax expert Jan Zobel of BankRate.com. As long as you follow the definition of home office--a place you only ever use for business--the Internal Revenue Service won't look at you with suspicion.

Capital Expenses
Even though capital expenses are not immediately deductible, you can eventually recover capital costs through other means, such as depreciation--deducting the cost of the loss of value of your assets, according to the SBA. If you choose to depreciate your assets, you must follow the charts given by the IRS and the guidelines set in IRS Publication 946: "How To Depreciate Property".

Tip
According to NOLO, you should consider delaying payments for startup costs because the IRS does not allow you to deduct things, such as rent and signs, if you purchase them before the official start date of your business. The IRS offers free tax preparation help for small business owners on its website. Consider using this in addition to recommendations made by your accountant or tax preparer if you have one.

Source: smallbusiness

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