Tax Deduction Do's & Don'ts

- For Small Business Accounting-

Did You Know?You can deduct certain business

expenses from your taxable income.

That means more of the money you

earned gets to stay in your pocket.

Some expenses are obviously not deductible (e.g.you can't claim your dog as as a dependent), but

sometimes the line between a valid write-off anda "that's so wrong" deduction gets blurry.

To help you out, here are some tax

deduction do's and don'ts for small

business accounting.

DO: Write off your homeoffice expenses.

If your home is the primary place where you

operate your small business, you can deduct

costs associated with the parts of your

home that are dedicated to your business.

You can write­off homeoffice costs 2 ways:

You can use the regular method to claim thepercentage of all your home's expenses thatyou use for your business.

You can use the simplified method: Deduct$5 per square foot of your home office. Youcan deduct up to 300 square feet (or$1,500).

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DON'T: Claim your entirehome as a deduction.

Chances are, you don't fill out paperwork in yourbathroom. Personal expenses, including the cost of

your living space, are never deductible.

DO: Deduct the businessuse of a car.

If you use your car for your business, it's taxdeductible. But, if you also use your car for

every aspect of your life, make sure you onlyclaim the expenses related to your business.

You can deduct the business useof your car using 2 methods:

The actual expense method, with which youadd up all the costs associated with your carfor the portion of use dedicated to yourbusiness operations.

The standard mileage rate, with which youdeduct a certain amount of money for eachbusiness-related mile you drive. Check withthe IRS for current mileage allowances.

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DON'T: Claim business use ofyour car for your commute

to and from work.Some car-related expenses are not deductible, even ifthey are for business use. For example, you can't claim

your work commute, parking fees, or traffic tickets.

DO: Write off travel expensesfor business trips.

Travel costs (airfare, hotel charges) fall under

business expense deductions. Business expenses

must be ordinary, necessary, and reasonable.

DON'T: Write offpersonal vacations.

You can't deduct travel expenses when you'renot traveling for business. Even if you come upwith a new product idea at the all-you-can-eat

buffet, your beach vacation is not tax deductible.

DO: Deduct applicableemployee expenses.

You can write off employee wages you paidthroughout the year. You can also deduct employer

contributions you made to employee benefits.

DON'T: Claim more than the2% rule on employee expenses. 

Employee costs are business expenses that fall under

miscellaneous deductions. The IRS says you can claim

expenses that are more than 2% of your adjusted

gross income. If your expenses are less than this

number, you can't deduct them.

DO: Write off yourcharitable donations.

The IRS sets limits for deducting charitable

donations to qualified tax-exempt organizations. In

most cases, you may deduct your donations using

the 50% limit. The amount you write off must be

less than 50% of your adjusted gross income.

DON'T: Deduct income youcould have made while youvolunteered for charity.

You could lose out on sales if you cancel a meeting or

close shop to do volunteer work. You can't estimate

the money you might have made and write it off.

DO: Deduct business baddebt expenses.

Did you sell to a customer on credit and couldn't collect the

owed money? At some point, you know there is no chance

you will ever see payment. That's when accounts

receivable turn into bad business debts.

You can write off business bad debts on your tax return.

But, you must prove to the IRS that you have taken

reasonable steps to collect the money.

DON'T: Write off a sales' expected earningsas bad debt if no expense has been incurred.

You can only end up with bad debt if you handed over

a product (or finished a service for) your customer,

with the expectation that the customer would pay

you later.

If the customer never received the product or

service, there is no bad debt.

DO: Claim legal or professionalfees related to your business.

You can deduct legal and professional fees that are

ordinary, necessary and directly related to your

business. Small business owners can deduct fees

associated with trying to collect money.

DON'T: Deduct personal legalor professional fees.

Personal legal fees aren't deductible. You can't

deduct fees associated with writing your will, a

divorce, or a criminal dispute.

The IRS sets guidelines fortax deductions.

You must follow the rules carefully and keep

accurate records of your expenses. Be sure to

consult with a tax professional before making your

small business deductions.

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