In continuation of last week’s post, “A Dozen Deductions For Your Small business”, there are several more tax deductions that can be credited to your business.
7. Travel, meals, entertainment and gifts
Good news, small-business travelers. You might as well stay in a nice hotel, because the entire cost is tax-deductible. Likewise, the cost of travel — air, rail or auto — is 100 percent deductible, as are costs associated with life on the road (dry cleaning, rental cars and tipping the bellboy).
The only exception is dining out. You can deduct only 50 percent of your meals while traveling. So stay at the Ritz and eat at Wendy’s.
Once you get home, your on-the-job meals aren’t deductible — unless you bring along a client to talk business. In this case, you might consider splurging on a fancier meal because then you can write off half such work-related dining costs.
The 50 percent deduction limit applies to most other client entertainment expenses, too. But a direct gift to a client or employee is 100 percent deductible, says Zobel, up to $25 per person per year.
8. Insurance premiums
Self-employed and paying your own health insurance premiums? These costs are 100 percent deductible.
This break primarily benefits proprietorships, but there are limits. The deduction can’t be more than your business’ net profit. And it’s not allowed if you were eligible for other health care coverage, including that offered by your employed spouse’s medical plan.
Did your spouse work for you last year? Then, Carter says, you can get the full medical premiums deduction on your return. As an employee, your spouse’s premiums are 100 percent deductible; if you and the children were on his or her policy as dependents, so are those costs.
Two caveats: 1) Your spouse’s employment must be real, not in name only, and you must offer coverage equally to any other employees. 2) Failure to meet these requirements could result in a lawsuit, an audit or both.
You also can include some of the premiums you pay for long-term care insurance for yourself, your spouse or dependents.
9. Retirement contributions
Are you self-employed and saving for your own retirement with a SEP IRA or Keogh? Don’t forget to deduct your contribution on your personal income tax return.
10. Social Security
The bad news: If you’re self-employed or starting a small business, you have to pay double the Social Security contributions you would as an employee. That’s because federal law requires the employer pay half and the employee pay half. Self-employed workers are both, meaning the total will equal 15.3 percent of your net profits.
The good news: You can deduct half of the contribution on your 1040.
11. Telephone charges
You can deduct the cost of the business calls that you make for business from home. When your bill comes in, circle the business-related calls, total them up and keep a copy. At the end of the year, tally your 12 bills and deduct 100 percent.
The IRS assumes that you will have a phone in your house anyway, so Zobel cautions that regular fees and charges don’t count toward your deduction. But if you have a second line installed and use it only for business, all of these charges are deductible.
Many people now rely solely on a cellphone. If you use your cellphone for your business, you can claim those calls as a tax deduction. If 30 percent of your time on the phone is spent on business, you could legitimately deduct 30 percent of your phone bill.
12. Child labor
“It’s always good to employ your kids,” says Carter. Depending upon how much you paid them, they might be able to avoid income taxes. Plus, there is no Social Security tax when you hire your child who is 17 or younger and you can deduct the salary as a business expense. This break is available, however, only if you operate as a sole proprietor or as a partnership in which you and your spouse are the only partners. If your business runs as a corporation, then it, not you, is considered the employer and the corporation is not relieved of the tax liabilities.
Make the money go even further. Have your child contribute to a Roth IRA, says Carter. Not only have you gotten a nice tax deduction from the salary and trained your youngster to save, you’ve also helped establish a nest egg for his or her future.