Can I Deduct That?

Figuring out what you can and can’t deduct as a business expense is challenging. These tips help you lower your tax bill without running afoul of the federal tax code.

Tax deductions and credits are crucial to your company’s bottom line. But with the federal tax code now stretching to more than 73,000 pages, figuring out what you can and can’t claim can be challenging. These tips can help you minimize your tax bill without agitating the Internal Revenue Service.

Back to basics

We’ll start by reviewing the nuances of some basic deductions that small businesses routinely take but sometimes misuse:

– Travel and meals. You can deduct 100 percent of business travel expenses, such as hotel bills, air fare, taxi fares and all related tips. But you can deduct only 50 percent of the cost of business meals. Note that you can deduct meals taken solo while traveling for work outside the city or general area where your business is based, but not while you’re in that area. So running across town to try the new sushi restaurant for lunch isn’t deductible.

An exception to the 50 percent rule, notes Adam Shay, a certified public accountant in Wilmington, North Carolina, is for meals served at annual company outings such as holiday parties. Their costs are 100 percent deductible.

– Vehicle expenses. You can deduct the cost of using your vehicle for business, including ordinary and necessary expenses associated with its operation. But you must keep a current vehicle mileage log, and claim deductions only for use related to business activities. Unfortunately, commuting from your home to your place of business doesn’t count as one of those activities.

– Gifts. Gifts to clients are deductible, but only up to $25 per recipient annually.

– Home office. If you work from home some or all of the time, you may be able to claim a tax deduction for a pro-rata percentage of home-related business expenses such as rent or mortgage, insurance and utilities. But the rules for claiming this deduction are strict.

First, your home office must be your principal place of business. If you run a machine shop several miles from your home and conduct a substantial portion of your duties from that shop, you probably can’t claim your home office. By contrast, if you spend most of your time on the road but do the bulk of your administrative work in the room over your garage, you probably can. Just make sure you don’t have the kids playing video games in there; your home office must be used regularly and exclusively for your trade or business, notes Dave Du Val, vice president of tax services for TaxAudit.com.

– Internet, phone and cable services. Generally, these are all tax-deductible expenses when incurred at your place of business. If you want to claim them for a home office, you’ll need to pro-rate them, claiming only the percentage related to business use, says CPA Scott Berger, a principal with Kaufman Rossin in Boca Raton, Florida.

Continue reading this tax credit article at Businessonmain.com.