By Maggie Leyes
Are you in business for yourself? The bottom line is: If you’re not on someone else’s payroll, you’ll want to read on to make sure that you aren’t paying Uncle Sam more tax than is his due. Yes, you most likely have an accountant you lean on, but only you truly know your business inside and out. “Any experienced tax accountant will know about every tax deduction listed in [my] book,” says Bernard Kamoroff, CPA, author of 422 Tax Deductions for Businesses and Self-Employed Individuals. “But your accountant can’t possibly take the time to ask you—and his other 300 tax clients—about every possible deduction you didn’t know about or failed to include on your tax ledgers.”
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The majority of deductions that a small-business owner can take are never mentioned in the tax code. |
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Four rules
The IRS spells out some tax deductions explicitly, but the majority of deductions that a small-business owner can take are never mentioned in the tax code. The IRS does, however, give four basic rules for you to follow, Kamoroff points out. All the expenses that you want to deduct on your business tax return must be:
- incurred in connection with your trade, business or profession
- “ordinary,” or commonly accepted in the field
- “necessary,” which the IRS takes to mean “that is appropriate and helpful in developing and maintaining your business or trade.”
- not be lavish or extravagant under the circumstances
Kamoroff’s book, 422 Tax Deductions, is simple to use. It lists the deductions in alphabetical order, which makes it easy to jump in and out of listings—avoiding those you know about and reading more about those you may not have thought of. The listing also has an “expense category,” which suggests where to put the deduction on your tax form.
Here are 10 deductions that Kamoroff lists that may not have made it on to your radar screen:
- Advertising and promotional expenses, including flyers and catalogs, and your listing in the Yellow Pages
- Telephone answering service, including installation and set up
- Professional association and business group fees (Yes, that means your NAIFA dues!)
- Cleaning and janitorial fees for your office
- Fees for decorating, remodeling or renovating your office
- Flowers—yes, the ones you buy for your assistant and those you place around your office—as well as plants
- Making your business more handicap accessible
- Creation of a company logo
- An office music system or stereo system
- Your company party (if all employees are invited)
We also couldn’t resist listing a few deductions that Kamoroff includes that you’ll probably never have to worry about:
- Use of a bodyguard
- Extending bribes (Did you know some bribes are legal?)
- Buying costumes
- Drilling a well
Here is some additional advice that Kamoroff offers to help keep you on the straight and narrow
- Get receipts for everything—and keep them.
- Use a set of business ledgers or an accounting software program, as many deductions are lost because the business owner didn’t write them down.
- Keep in mind that while many state tax laws mirror federal tax laws, there is no guarantee; so, be sure to ask your accountant.
- If you find out that there are a number of deductions you didn’t take (but should have taken) in previous years, you can file an amended tax return within three years of the date you filed your original tax return or within two years from the time you paid your tax (whichever is later).
For more information, or to purchase the book, go to www.bellsprings.com.
Maggie Leyes is a contributor to AdvisorToday.com
July 2008
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