Tax Deductions for Small Business

The following is not tax advice – it’s just common sense and basic rules of thumb.

It is that time of year again where everyone is all worried about paying their taxes, but not paying too much in taxes. As usual, we as business owners should have been keeping our chart of accounts and financials current throughout the year. I recommend you reconcile your accounts monthly so that there are no surprises at the end of the year. I also recommend that you hire a bookkeeper who will work directly with your tax preparer so that again there are no surprises at the end of the year. If you are like many small business owners you are just now getting your last year’s financial inputs into your accounting software and will expect your tax preparer to pull an all-nighter to get your taxes out before time is up for the current year. 

Some basic rules of thumb:

1. Anything less than $15 probably isn’t a reasonable business deduction.

2. Meals and entertainment should apply only to a time when you and a staff member or client are discussing business before, during, or after the meal or entertainment.

3. You can never have too much documentation.

4. Always write down the details of a meal on the receipt and throw it in a shoe box.

5. Average per diem for business travel to Cincinnati, for example, should be around $127 for lodging and $56 for meals and incidental expenses. To find the current rates for other US cities, view the GSA site here

6. A trip can only be a deduction if the primary purpose is business.

7. If in doubt do not deduct.

Tax is an area where you need to hire expertise. Should you ever have to go through any type of tax audit the expense of the expert is a small price to pay for the peace of mind and representation you will need. Never go to any type of tax audit and represent yourself. According to a friend of mine who is a CPA “Anyone can enter figures into QuickBooks. But what you really need is a good bookkeeper/CPA who understands the tax laws.” Very wise words of advice. 

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