If you are self employed, you have almost certainly asked yourself: What are the most acceptable tax write offs for my particular situation? One of the essential questions you must answer when taking a deduction is "Would I have incurred this expense if I weran't in business?" Common items elegible for tax write offs include office supplies, business meals, travel, postage, security, maintenance, internet access, professional licenses, accounting, education and training. All told there are more than 300 tax deductions available for small businesses. Are you taking as many as you can? Make sure you are deducting all the legitimate expenses you incur. Below is a description of some of the more common tax write-offs.
In order to be a tax deductible expence eligible for a write-off, a business expense must be both necessary and ordinary. As the name implies, a necessary expense is one that is helpful and appropriate for your particular trade or business. The expense does not have to be indespensable for you to conduct your business in order for it to pass the test of being necessary. An ordinary expense is one that is considered common and well accepted among those involved in your trade or business. Some commonly accepted tax write offs are listed below.
If you are in the business of manufacturing goods or purchasing them for resale, some of your expenses can be included when you are figuring the cost of goods sold. You can deduct the cost of goods sold from your gross receipt to figure your gross profit for the year. However, if you use an expense when calculating the cost of goods sold, you cannot deduct that item again as a business expense. The following list illustrates the kind of expenses that you will use when figuring the cost of goods sold:
You must capitalize, rather than deduct, some of your operational costs. These costs are part of your investment in your business. There are three main types of costs that you will need to capitalize.
In general, you cannot simply deduct your personal, living, or family expenses as a tax write off. However, if you have an expense for something that is used partly for business and partly for personal purposes, you can divide the total cost of the item into personal and business parts. You can then deduct the portion of the cost related to business use.
If part of your home is used for your business (for example a home office), you can deduct the expenses directly related to the business use of your home. These expenses may include (but are definitely not limited) to: mortgage interest, insurance, utilities, repairs, and depreciation. You can also deduct the business use of your vehicle.
Clearly, this is not an all inclusive list of the write offs available to you, as there are more than 300 tax deductions available to your small business. These deductions can often end up saving you from overpaying thousands of dollars in taxes. In order to be sure that you are making the most of your business deductions, please sign up below for a free tax savings strategy session with a trained tax professional. This complementary phone consultation will help you to identify tax write-offs that you may not currently be using that could end up saving you a great deal of money every year! You may be able to take more business deductions than you thought.
To learn more tax saving strategies, please see our Tax Write Offs page.