While I’m not an accountant or an attorney (any more!), it is tax time and I am paying my taxes along with the rest of us.  So I thought it would be helpful to provide a few basic guidelines for tax deductions for the small business owner and be sure you’ve taken advantage of these legal benefits of having your own business.

Business Operating Expenses

Many expenses are deductible against your business revenues.   These reduce your taxable income from your business activities.  Whether or not an expense can be deductible depends on several factors:

1.  Was the expense “ordinary and necessary” for your business?  The IRS defines ordinary as “common and accepted in a field of business,” and necessary as “helpful and appropriate to your business.”

2.  Did it relate to a business (as opposed to personal) activity?  A mere hobby does not qualify for the business deduction.

Adequate records will be required for all expenses as well as items that are amortized (where a portion is depreciated each year) over a period of years.

Some examples (not a complete list) of common expenses that are deductible to a business include things like advertising, bank service charges on business accounts, commissions paid, costs related to the sale of goods, dues, business gifts, office expenses, office rental, travel expenses, independent contractor services and more.

Other business-related costs and investments may not be directly deductible but may be eligible for other favorable tax treatment.  For example, certain start-up costs are amortized over a longer period of time.  Capital expenditures in equipment and furnishings can be deducted up to a certain annual limit; above that limit, amortization and depreciation are required.  There are other exceptions to the deductibility rule, such as home office deduction, and business use of an automobile.

And the list of expenses that are neither deductible nor amortizable is even longer!  Representative expenses that do not qualify for deduction (not a complete list) include bar or professional examination fees, charitable contributions or gifts by non-corporation, country club dues, commuting expenses (with some exceptions), job search expenses and more.

Retirement For The Self-Employed

As a self-employed business owner, you can deduct up to 25 percent of your net income to a Self-Employed Pension or SEP.  Other retirement options include IRA, Simple IRA and others.  Don’t forget to put some of your hard-earned money away for the future – and get a deduction too!

Your Coach Training And Other Education

Up to $4000 in tuition is deductible if you are below the adjusted gross income ceiling of $65,000 single, $130,000 couple (and if you have higher AGI, you can still deduct $2000).  IRS Topic 302 addresses this.  Check with your tax professional as to whether a coaching school qualifies as a “post-secondary institution.”

Home Office Deduction

If you work from home, you can deduct, for your home office, the percentage of mortgage, utilities, insurance, taxes, repairs and related homeowner expenses allocable to the number of square footage your home office is divided by total square footage of the home. 

Business Entertainment

If you take clients to lunch, buy them tickets to an event or conference, travel on business or otherwise enjoy meals or other listed entertainment expenses, you can deduct a percentage of it on your taxes (often 50%).

Health Insurance

Any medical insurance you pay for yourself can also be deducted against your business income.  Certain other uninsured medical expenses, including nonprescription medications, acupuncture, and eyeglasses, are also normally deductible.

Business Assets

Did you buy a computer, printer, projector, software, or other items for your business this year?  If so, you can usually write off the cost of those items (up to an ever-increasing ceiling) under Section 179 of the Internal Revenue Code.

Business Mileage

Since many coaches work from home, any transportation to see a client, attend a meeting, pick up mail or do other business errands is usually deductible as business mileage.  Commuting to and from one’s office is always excluded, but with a home-based business there would be no commuting to eliminate. 

For further details and the current requirements, please consult your tax advisor or see online resources such as CCH’s Business Owner’s Toolkit at http://www.toolkit.cch.com/text/P07_2510.asp or the Internal Revenue Service’s Tax Guide for Small Business, available on their web site at www.irs.gov.  The IRS offers streaming video classes as well as Power Point presentations on its web site regarding deductible business expenses.

And for a full course on your start-up – including legal, accounting, and helpful logistical issues such as phone systems, software, where to get funding and more, get our Jump-Start Your Purposeful Business e-course (or join our class in progress) today!  www.purposefulentrepreneur.com/jumpstartbiz.html

Comments are closed.