The U.S. Taxes Blog

Did you know that if you host a picnic for your employees and their families that the IRS will pick up the tab in the way of a business tax deduction?  Entertainment costs for your business are tax deductible.  Most of these expenses come in the form of 50 percent.  For example, if you take a prospective client out to dinner to impress them, you can only claim 50 percent of the cost of doing so on your taxes.

But, having social events for your employees and their families is 100 percent tax deductible.  The reason for this is quite simple:  they are a direct result of your business and help you to stay in business.  What’s more, you do not need to prove that it was to foster a business goal or related to any end result for your employees.  Receipts are required, as usual.

Entertainment costs are often one of the most commonly looked at business expenses on tax forms.  The tax laws have changed in regard to which and how much entertainment deduction can be taken.  It used to be that a full 100 percent of your entertainment costs related to your business were deductible.  That changed a few years ago to just 80 percent. Believe it or not, this has further dropped to only 50 percent.

That means that if you take that client out for a dinner at the most upscale place in town, 50 percent of the cost is deductible, no matter how much you spend.  As for what you can deduct as a discount, this includes just about anything from taking clients to a game to a concert are event just having a group over to your home.  50 percent of this is deductible, but do keep your receipts.

Since most people that are audited because of missing records, not because of dishonesty, the key to avoiding the tax man is to have organized, efficient systems to keep your business income in check.

Here’s a solution for you.  Separate all of your documentation by categories.  You may want to consider categories for advertising, travel, auto expenses, utilities, rent or mortgage payments, professional fees, etc.  Keep all receipts and canceled checks in the appropriate folder.

The burden of proof is on you.  What’s more, small businesses are more likely to be audited three times as much as individuals.  Their target is often reported business expenses such as your travel expenses and your entertainment expenses. This should not be a problem for you if you have all of your expenses documented in an organized manner.

Stay organized year round and you will see the process is very straightforward and even simple.

Those consider capital expenses are wondering, how do I know if something falls under a capital expense or a current expense?

It is a perplexing consideration.  Under tax law, anything that will help you to generate a business income over several years is considered a capital expense.  For example, if you invest in a copier for the office, this will work for you for several years.  Therefore, it is considered an expense that must be deducted over several years time.  The IRS rules define how long this period will be.  It could be three years, five years or seven years depending on the item.

But, do take into consideration Section 179 which now allows some items considered to be capital expenses to be deducted as current expenses.  This includes things like computer purchases and office furniture, depending on the situation.

Business travel expenses are one of the most looked at by the IRS.  Deductions in these expenses are just fine, in most business travel cases.  But, what if you want to take your family along with you?  Perhaps you have a business trip in New York and the family wants to spend a few days sight seeing. Can you deduct the costs now?

You can deduct the costs associated with your expenses along, for the business portion of your trip.  In other words, your airfare is deductible while theirs is not.  Their hotel room is not deductible but yours is.  If you all stay in the same room and the cost is the same as it would be for one single person, then the entire hotel expense is deductible.  Likewise, while they are sightseeing, the expenses associated with that are not deductible.

Ready To Start That Small Business?

Starting your own small business is an amazing idea.  Unfortunately, Big Brother is looking over your shoulder as you do it.  Those that are considering starting their own business need to know what to do to keep the IRS off their backs.

There are many things that you can and should do, but by far the most important is keeping records of your business.  Poor records are the number one reason that people fail to provide accurate tax filings.  While you should be honest and upfront about the business to the IRS from the beginning, most people make mistakes from sheer “forgetting” or lack of organization.

Also, if you do hire a professional to manage your books, do supervise them.  It is ultimately your responsibility to file accurate tax reports.  The good news is that it does not have to be difficult to do.

We all start out the year determined to keep a notebook in our car to write down all the mileage associated with visits to clients or attendance important meetings.  By thend of the month, we’ve been too busy to keep up with it. It is important to maintain records as they will allow valuable deductions on your taxes.

The tax code allows for business related driving to be tax deductible, the key to getting the best deduction is to have accurate documentation.  For each trip you need to record the date, the number of miles traveled; any tolls you paid, parking costs paid as well as the reason for the trip.

The easiet method to calculate your deduction uses a ste value for each mile travelled.  First, add up all of the mileage, and mutiply it by the set rate appropriate to your circumstances, and then add in the costs involved just as tolls and calculate the cost.

There are other methods to calculation, these con be complicated and it is recommended that you seek professional tax advice with these methods.  Leases, purchasing a new car and even having your business out of your home, all offer deduction potential.

Small business has many benefits when it comes to the world of tax.  Software programs along with other subscriptions that you have associated with your business DO apply as deductions as they are part of your business expenses. 

Originally, the cost of software and other such subscriptions could only be deducted by depreciating the cost over a full three year period.  Now, Section 179 of the Tax Law allows for you to use the full purchase price, as a deduction, all the shelf software that you use for your business. This deduction is allowed during the year that you purchased the software. 

The business that offers things like magazine subscriptions in their waiting rooms, for example, did not have their rules changed.  These can still be deducted in the year that you purchased them against your taxable business income.

Remember to keep records of your purchases. You are only entitled to deductions on those software programs and subscriptions that are specifically business related.

Tax professionals are the first to tell you that the best way to not pay taxes is to plan not to pay taxes.  Start planning on January 1st (or wherever you are right now) on ways that you can save your taxes.  This includes everything from planning your expenses properly to keeping those receipts handy.  Many find that the best way to do this is through a tax professional that can work side by side with your business.
What’s more, if you personally stay up to date on what is considered a deduction or the new taxes that head to Congress every year, then you can make better decisions for your business every day.  The best way to do that is simply by picking up the finance section of the paper and reading it.  It can be that simple to reduce your taxes significantly.