"25 Common Business Deductions and Expenses”

Every time you lick a stamp for your business, write a check for an insurance premium or buy a box of paper clips, you’re incurring a legitimate business expense that may be tax-deductible.

By keeping close tabs on those business deductions allowed by the Internal Revenue Service and adding up all those seemingly incidental purchases, you may be able to lessen the bite at tax time.

The Internal Revenue Code allows you to deduct all “ordinary and necessary” expenses of operating your business — these can vary depending on the type of business. Below are some of the most common deductions small businesses take.

You should speak with your tax advisor to see what other deductions your company can take advantage of.

1. Health insurance
   Self-employed people can deduct up to 60
   percent of their health insurance payments for 2000. You can add the remainder
   you can’t deduct to your itemized medical expenses — they may be enough to
   push you over the threshold of 7.5 percent of your gross income and make your
   remaining medical expenses deductible.
2. Home office deduction
   If you meet the IRS guidelines for
   operating a home office, you can get a significant tax break. Be sure to
   separate your expenses into direct and indirect expenses. Direct expenses are
   fully deductible. Those are things like painting or decorating your office;
   cleaning services for the business portion of your home and insurance on
   business equipment. Indirect expenses are those that apply to your entire
   home. Calculate the square footage of your office as a percentage of the
   square footage of your whole home to calculate how much you can deduct from
   rent, mortgage utilities and other expenses.
3. Retirement plans
   Self-employed business owners have a wide
   variety of retirement plans available — Individual Retirement Accounts (IRA),
   Simplified Employee Pensions (SEP) and Keogh accounts. You can deduct
   contributions made to these plans, and their income is tax deferred.
4. First year expense deduction
   You can deduct up to $20,000
   (rising to $25,000 by 2003) worth of business equipment — computers, fax
   machines, copiers, phone systems, or other fixed assets — as a current
   expense using the first year expense deduction. Otherwise, you would have to
   deduct the cost of the equipment over several years via the tax code’s
   depreciation schedules.
5. Rent, phones, utilities
   Your office rent or mortgage payments;
   your electricity, water or gas bills; your phone charges are all deductible.
6. Auto expenses
   If you use your car for business, you can choose
   from two different methods to deduct business-use charges. The most common
   method is to deduct the amount per mile that the IRS allows in any given year
   for business travel — 32.5 cents/mile. Alternatively, you can itemize: take a
   depreciation deduction on the cost of your vehicle and add to that all the
   costs of running and maintaining your car (gas, oil, parking fees, repairs,
   insurance premiums, tolls, tires, license and registration fees). You can
   switch between methods from year to year, so it may pay to calculate both and
   choose the one that provides you with the greatest deduction.
7. Education
   Don’t neglect deductions for education expenses that
   relate to your business, trade or occupation. Under IRS regulations, the
   education expense must maintain or improve skills required in your present
   employment or required by your employer or as a legal requirement of your job
   or profession. You can’t deduct education expenses for a career change or to
   start a new business.
8. Entertainment
   You can deduct 50 percent of ordinary and
   necessary business expenses for entertaining a client, customer or employee if
   it is directly related to your business or associated with your business. It
   is essential to keep excellent records for business entertainment expenses.
   For example, if you take someone out for a meal, be sure to document the date,
   the amount, the place the meal took place, the business purpose of the meal,
   and the business relationship. If you hold a party, you should keep a copy of
   the guest list, noting the your respective business relationships.
9. Gifts
   You can deduct gifts valued at up to $25 per person per
   year. So if you give out Christmas gifts to clients, or give presents to your
   staff after you’ve won a new contract, you may be able to deduct at least part
   of the cost.
10. Public relations, promotion and advertising
    These important
    marketing costs shouldn’t be forgotten at tax time; they are all deductible
    business expenses. If you send out free samples of your product, that’s a
    deductible cost of promotion. So is hiring someone to write your press
    releases or leaflet the neighborhood.
11. Trade shows, conventions and seminars
    Whether you’re exhibiting
    at a trade show, or just attending, costs you incur can be considered
    legitimate business expenses.
12. Professional publications
    Magazines, newspapers, newsletters or
    books related to your profession or operating your business are deductible.
    Some professionals, particularly those who work in media or communications
    fields, can legitimately deduct a newspaper subscription, cable television
    fees and other expenses if they can show they are professionally necessary.
13. Interest payments on business credit cards
    If you have a
    separate business credit card, you can deduct interest payments.
14. Internet and e-mail services
    Don’t forget to deduct your monthly
    bill for your online service providers (particularly if you’re using the
    information on this page to help you run your business).
15. Professional associations
    You can deduct dues for joining a
    trade association, your chamber of commerce, or any other professional group.
    On the other hand, you cannot deduct dues for a private club such as social
    and athletic clubs.
16. Local travel
    This includes taxi, train or bus fare related to
    your business. Keep track of your travels in a datebook, and get receipts. One
    caveat — you can not deduct expenses related to commuting to and from your
    office.
17. Business travel
    If you go overnight for a convention or business
    trip, you may deduct all expenses related to the trip, including
    transportation, lodging, meals, laundry expenses, cleaning, fax or phone
    charges, tips, etc. If you take a trip that combines business and pleasure,
    you can deduct travel expenses and business expenses only if 50% or more of
    your trip is devoted to business.
18. Parking
    While the meter is running, your tax deductions are
    growing too. Don’t forget to deduct those garage, parking lot and meter
    charges. But if you get a ticket for letting the meter run out or running a
    red light on the way to a business meeting, you’re out of luck; the IRS
    doesn’t let you deduct fines from your taxes.
19. Postage
    Every letter you send for your business is worth a
    mini-tax deduction. Try buying your postage stamps over the phone from
    1-800-STAMP-24 or online, so you can pay with your business credit card and
    keep better track of the purchase.
20. Office furniture
    Desks, chairs, lamps, filing cabinets, couches
    and plants in your waiting room can be included in your business
    expenses.
21. Business cards and stationary
    Did you print new business cards
    this year? Did you create new stationary and envelopes? Those costs are
    deductible.
22. Office supplies
    Keep track of money spent on paper clips, legal
    pads, pens, toner cartridges, file folders and all other office supplies.
23. Insurance
    You can deduct premiums for all your business
    insurance, including equipment coverage, property insurance, liability
    coverage, etc.
24. Local business taxes and fees
    If you have to pay city, county or
    state business taxes or incorporation fees, these charges are deductible.
25. Bank service charges
    Review your bank statement to see if you
    are being charged for operating your business accounts. If the answer is
    “yes,” then you’ve found another deduction.

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