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Taxation
101: Business Or Hobby?
Article by Elena
Fawkner
Common Deductions
OK, now that we all have healthy
profit motives and are therefore running serious businesses here, let's finish
up with a quick look at some of the common business deductions for home-based
businesses:
Home office deduction. For a
complete article on this deduction, read "Taxing
Times... The Home Office Deduction."
First year expense deduction.
You can deduct up to $20,000 worth of equipment as a current expense during your
first year of business with this deduction. Otherwise, you would have to deduct
it over a period of years depending on the depreciation schedules for the assets
concerned.
Auto expenses. If you use your
car for business purposes, you can claim mileage or depreciation. The mileage
method allows you to deduct the amount per mile the IRS allows for the particular
year. The depreciation method allows you to take a depreciation deduction on the
cost of your car and add to that all costs and expenses associated with running
your car including maintenance.
Health insurance payments (proportion).
Business insurance premiums.
Contributions to retirement plans.
Continuing education expenses
related to your business.
Gifts valued at up to $25 per
person per year.
Internet and email services -
ISP, webhosting etc.
Interest on business credit.
Entertainment - 50% of ordinary
and necessary business expenses for entertaining clients, employees, etc.
Advertising, marketing and promotion
expenses.
Membership dues for professional
associations.
Subscription costs for professional
and trade publications.
Local travel expenses e.g. taxis,
trains etc.
Business travel expenses - airfare,
accommodation, meals, entertainment etc.
Postage.
Furniture and equipment.
Business cards, stationery and
office supplies.
Parking fees.
Bank fees on business accounts.
For
more detailed treatment of each of these deductions, as well as many others, visit
the IRS website at http://www.irs.gov.
Tax
time is no fun for any of us, but there is no reason to make it any harder than
it has to be. If you keep putting off getting your tax return prepared because
you just can't face the thought of going through that shoebox at the back of your
closet to organize your receipts, make a vow that this is the last year you will
do this to yourself. It's still early enough in the year to get your act together
and by this time next year you could be focusing on your business rather than
stressing out about something as unnecessary as tax-time hassles.
