While we do not recommend that you mess with the IRS, it is important to be familiar with the deductions that can save you money. At Your Balance Sheet, we would definitely advise you to keep what money you can. Take a look at these tax deductions and see if any of them apply to your business situation. If you’re a business owner, an entrepreneur, or self-employed, there is a very good chance these deductions could save you hundreds of dollars.
1. Do you work out of your home?
If you work out of your own home, there is no reason you can’t claim a tax deduction. However, the key is that you use the term “home office” when describing the deduction, which is exactly the term that the IRS uses. The amount of the deduction you can claim is directly proportional to the square footage of the area that your workspace occupies. Divide that square footage number by the total square footage of your home. Multiply the resulting percentage by the total expenses (rent, mortgage, insurance, utilities, etc.) you pay for your housing. The resulting amount is the amount you may deduct from your taxes.
For instance, if your workspace occupies a 15×15 ft space of your 1800 square foot home, your office space takes up 12.5 percent of your total square footage. If your total bills for your home amount to $15,000 per year, then your deductible amount would equal approximately $1,875. Suffice it to say, there’s huge money-saving potential in this valuable deduction.
2. Did you buy furniture for business purposes?
If you did, you’re in luck! You can either deduct the full amount from this year’s tax report, or you can depreciate the item over 7 years. You deduct portions of the amount over the next 7 years until all of your deductions equal the initial cost of the item at the end of the 7th year.
3. Did you buy electronic equipment?
This deduction is quite similar to the deduction for furniture. Instead of 7 years of depreciation, however, you are allowed to depreciate the item over the next 5 years. Keep in mind, though, that you may still deduct the full amount this year.
4. Did you buy software programs or applications?
In years past, software packages had to be depreciated over three years. However, for the 2013 tax reports, software programs can be deducted for their full amount in the year of purchase. However, this stipulation may not carry over into 2014 if Congress doesn’t renew the rule.
5. Did you buy office supplies?
Track those receipts! Keep good records of all of the office supplies you buy. A years worth of office supplies could cost hundreds of dollars that you might as well keep for yourself!
6. Did you drive to business-related errands or outings?
You can claim a tax deduction based on the mileage you log for business-related drive time. Log the dates, distance, tolls, and parking costs associated with your outings. Multiply your mileage total by 56.5 cents for 2013, and then add the parking and toll costs. Do note, however, that driving to and from the office does not count as deductible mileage.
7. Did you travel or participate in entertainment activities during a business trip?
When considering going on a business trip, feel free to stay at the most expensive hotel on the block because the entire cost is tax deductible! However, entertainment activities and meals are only 50% deductible, so choose your restaurants and fun outings accordingly. Keep in mind, however, that your meals are no longer deductible when you return home – unless you’re treating a client to a business meeting. If you’re out to talk business, associated meal costs are 50% deductible. So, feel free to choose a nice restaurant for your business meetings in 2014!
8. Are you self-employed and pay insurance premiums?
Insurance premiums for self-employed individuals are 100% deductible! However, there is a catch. The deduction can’t be more than the total net worth of your business. Also, if you could have been covered by your employed spouse’s medical plan, you’re unable to claim this deduction.
For more information on tax deductions or for answers to any questions you have, contact Your Balance Sheet. We would be more than happy to work with you to file your taxes, and we can help you calculate all the deductions you deserve.