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Posted: March 09, 2009

There’s still time for small biz tax deductions

9 ways to increase your deductions

Rick LaFave

U.S. government statistics show that an estimated 20 percent of taxpayers wait until the week before the April 15th deadline to file their taxes. If we’re honest with ourselves, most of us will probably admit we’ve been there – waiting in that awful Post Office line – at some point in our lives.

If that trend carries over into the business world, this means that there are a lot of small businesses scrambling to file their 2008 returns before the March 16 corporate deadline.

It goes without saying, of course, that you should maximize the deductions available to you and keep as much money in your business as possible. But we find that this is often easier said than done, mostly because many small businesses don’t have the time or expertise to do so.

The IRS has some very specific rules on the areas below, so not every company will be able to take every deduction. A tax professional will be able to help walk you through this. You still have time to increase your deductions, however, and here are nine places where you should start looking for them in 2009:

1. Education Expenses

If your company paid for employees to learn or improve skills related to their current job, you might be able to see a deduction. Self-employed business owners may be eligible to write off some of their educational expenses as well.

2. Section 179 Expenses

Last year, Congress temporarily changed the tax rules governing expensing and depreciation of certain equipment in Section 179 of the tax code. As a result of the change, small businesses that make qualifying capital expenditures can expense up to $250,000 immediately, instead of allowing the equipment to depreciate.

3. Insurance Premiums

There are many different types of insurance that may qualify for a deduction – anything from fire and flood to employee disability, and workers’ compensation to product liability. Advance premium payments should be prorated to the year they apply, however.

4. Vehicle and Parking

Do you use your personal car for business purposes, or do you reimburse an employee for doing so? There are two ways to take the deduction: You could take the standard mileage rate, which increased from 50.5 cents to 58.5 cents per mile halfway through 2008. Or, you could opt to take the actual expenses associated with the travel – gas, repairs, insurance, cleaning and other relevant costs. Whether you choose to take actual expenses or mileage, you will still need to track total miles driven for the vehicle and the number of business miles.

5. Travel

If you spend a fair amount of time on the road, you should keep good records of your expenses. These expenses could include airfare, rental cars or cab rides, but also the tips, laundry or telephone costs in your hotel room. Remember that you generally can only write off half the cost of meals on business trips, however.

6. Start-Up Expenses

If you’re a new company and you have significant start-up costs in the last year, some of these expenses may be deductible – up to $5,000 for start-up costs and $5,000 for organizational expenses in the first year of your business.

7. Taxes

Payroll taxes are often the biggest opportunity in this group. These include not only Social Security and Medicare, but also federal and state unemployment taxes. Other potentially deductible taxes include real estate taxes on business property, local or state taxes on gross income, and certain sales taxes.

8. Interest

If your business uses property that has a mortgage, the interest on those payments is deductible. (Home-based businesses be careful, however – the IRS has very specific rules on how to write off home-office space.) Other accrued interest may be deductible, such as finance charges on business-related credit card purchases. Even though your credit card company will send you a breakdown of expenses by category, it is important to note that you still need to keep the original receipts.

9. Other Expenses

There are many more expenses that you may be able to write off – trade journals, bank service charges, association dues, charitable contributions and business gifts, to name a few.

In addition to claiming as many deductions as you can for this tax year, you should already be thinking about next year. Are you keeping the records you’ll need to optimize the deductions on next year’s return? A tax professional can help you start this process.

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Rick LaFave is a principal with H&R Block Tax & Business Services (formerly Vantive Partners) in Centennial. With 11 offices in the Denver area, H&R Block Tax & Business Services specializes in providing clients with a proactive approach to individual and business tax strategies. Visit www.HRBTaxandBusiness.com for more information.

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