The IRS allows businesses a number of tax deductions. Unfortunately, many of these deductions are often overlooked. Failing to claim all of your deductions is equivalent to throwing money out the window. Deductions are a legal way to reduce your taxable income. The following are the top 5 business tax deductions. These are applicable to corporations, partnerships, and single member business entities.
1. Operating Expenses
Expenses that keep your business running are fully deductible. Operating expenses include rent, payroll and office supplies.
2. Travel Expenses
If you must travel for business, the expenses incurred are deductible. Travel expenses might include plane fare, taxis, lodging, meals, shipping materials, telephone calls and more.
3. Business Entertaining
The costs of entertaining existing and prospective clients are deductible by fifty percent. These expenses might include a catered lunch meeting or an evening entertaining out-of-town clients. The event can be deducted as long as it is directly related to the business and business is discussed. It can also be deducted if it is associated with the business and the entertainment takes place directly before or after a business discussion.
4. Tax, Legal and Educational Expenses
Any fees paid that are directly related to operating your business are deductible. This includes fees paid to accountants, lawyers and business consultants. Education and training for employees is also deductible. However, legal fees that are paid to acquire business assets cannot be deducted, but are considered part of the purchase price. They may be considered part of your startup costs and would then be amortized and deducted over time.
5. Bad Debts
Bad debts include any money that is owed to you that has become impossible to collect. Common bad debts include loans to clients, suppliers, employees or distributors, and debts of an insolvent partner. In order to be considered a bad debt by the IRS, you will need to have tried to collect the debt for a reasonable amount of time. You can only claim a bad debt if the amount was previously included in your gross income.
Burdette Smith and Bish, LLC provides business accounting and bookkeeping services to businesses of all shapes and sizes. We provide our services to all states as well as citizens living abroad. We can help you locate tax deductions you might have missed. Please contact us for details.