Afraid of an Audit? Don’t Forget these Thirteen Deductions!
Don’t mess with the IRS, but take every legal deduction you can!
That doesn’t mean you should cheat yourself, in fact tax law states that you are to report all income and all related expenses. In other words, you are required to file an honest tax return and have the paper work to prove all amounts reported on your tax return. Take every legal deduction you can.
Here are thirteen deductions that are sometimes forgotten or left off for fear of an audit:
- Home Office ~ This deduction is not limited to a full room. Your home office can be part of a room. It must be a definable space that is exclusively used. Take pictures of your space for future proof if needed.
- Office Supplies ~ Even without a home office you need certain supplies to conduct business: paper for invoicing, pens and pencils, calculator and the like are legitimate deductions.
- Furniture ~ Used in your home office will be depreciated over the life of the item as set by the IRS. Keep a list of all furnishings in your office separate from other expenses as they are reported on a different portion of the tax return. Also they have an IRS tax life of seven years and may be subject to capital gains if sold.
- Other Equipment ~ Equipment used in your home office (computer, fax, copier, printer) along with equipment used in your business have a IRS tax life of five years and need to be reported separately and depreciated over the life of the item.
- Software and Subscriptions ~ Off-the-shelf software along with industry specific magazine subscriptions are business expenses. Also don’t forget the books and other reference materials purchased during the year.
- Mileage ~ The IRS loves documentation, so keep a notebook in your vehicle to record the date, mileage, tolls, parking costs and the purpose of your trip. At the beginning of the year write down the odometer reading so you will know total miles driven during the year. For 2012, the mileage rate is .55 ½ cents. If you have a home office, the mileage deduction is allowed for any miles driven with a business purpose. If you don’t have a home office, the first and last stops of the day are considered commute miles and are not deductible, but the total is needed at year end.
- Travel, Meals, Entertainment ~ Business travel (seminars, conferences, trade shows, etc) have deductible expenses. Travel to and from along with necessary overnight stays count even if you decide to stay an extra day for sightseeing. You want to pick up a brochure or agenda to prove that the basic reason and major part of the time was spent on business related activities. Meals count for travel or when meeting with clients, vendors, or networking. Be sure to document who and the business purpose on your receipts to take the deduction.
- Gifts ~ Gifts are limited to $25 per person per year.
- Insurance premiums ~ If paying your own health insurance premiums, these costs are deductible on your tax return as well but there are limits. The deduction can’t be more than your business’ net profit and it’s not allowed if you were eligible for other health care coverage, including that offered by your employed spouse’s medical plan.
- Retirement Contribution ~ Check with your financial advisor to find out if any deductible plans are available to you. You always have the deduction of any Traditional IRA contributions.
- Social Security ~ You are now responsible for your own social security tax – all of it. This amount will be added to your tax liability. It is calculated on a % your net income at the rate of 15.3%
- Telephone Deduction ~ Business long distance calls that you make for business from home are deductible. When your bill comes in, circle the business-related calls and other expenses, total them up and keep a copy. Also don’t forget to get receipts for any fees related to business calls or faxes sent while traveling.
- Child Labor ~ You can hire your children to work for you and save on payroll taxes until they reach 18. Beware the job must be age appropriate and necessary to your business. Some examples would include handing out flyers and filing. The wage must be set to an appropriate value. You can’t pay them $15 per hour for minimum wage jobs. You must also keep records of time and payment made. Write a check and open a separate account for your child to learn about money management while learning the family business.