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Many business taxpayers fail to deduct otherwise eligible business expenses or fail to fully deduct qualifying business expenses. As a result, millions of dollars are overpaid to the Internal Revenue Service every year.
While tax reporting season still seems far off, it’s a good idea to start identify and gathering receipts now in preparation for April. This can be a pain-free way to make sure you get the most money back on your taxes.
Some business owners swear by apps like Evernote Scannable or Expensify which keep track of your receipts. Using the camera on your mobile device you take a picture of the receipt, and you can save it to the Cloud or application that works the best for you.
Below is a listing of commonly missed deductions or deductions that you may not be fully utilizing. You may wish to carefully examine your records to determine if you may be missing any of these deductions. Remember though, according to the Business Expenses document put out by the IRS (Publication 535), your business expenses must be ordinary and necessary in order to be deducted from your taxes.
Home Office Deduction: If you use part of your home as a home office, you may be entitled to deduct expenses related to the home office based on the percentage of square footage the home office occupies. Related expenses include mortgage interest, property taxes, utilities, and repairs, etc.
General Business Expenses: If you use your personal funds for business expenses such as office supplies, these are qualifying business expenses, which you may deduct. Some travel expenses are also deductible, if you meet the burden of proof.
Imputed Interest on Shareholder Loans: If you have loaned money to your business, you are required to charge interest on the loan or interest will be imputed to you. While you are required to report the interest as income on your personal return, your business is permitted a deduction for the interest paid. If any of the interest amount is improperly characterized as wage income to you, your business may be overstating its employment tax liability. By recharacterizing these amounts as interest expense, your business may be able to reduce its employment taxes and possibly obtain a refund.
Meal Expenses: Business meal expenses that you pay with your personal funds may qualify as a business deduction, subject to limitations.
Personal Assets Converted to Business Use: If you have contributed personal assets, such as a computer, the fair market value of these assets qualify as a business deduction, subject to depreciation limitations, beginning with the date of conversion.
Self-Employed Health Insurance: As a self-employed taxpayer, you may deduct 100 percent of health insurance premiums for you, your spouse and your children. The deduction may also include eligible long-term care premiums for a long-term care insurance contract.
Communications Expenses: Expenses related to the business use of your personal telephones, cellular phones, and internet connections may be deducted.
Automobile Expenses: Mileage and other related automobile expenses may be deducted when your personal vehicle is used for business purposes.
If after examining your records you feel that you have missed some qualifying business deductions or if you have any questions about your business deductions or whether certain expenses qualify as business deductions, please be sure to work with your tax professional, they’ll be able to guide you in the right direction.