Don’t pay the price for bad business tax write-offs.
Business tax write-offs keep more of your money in your own pocket, as long as you only take the ones that are legitimate. Make a mistake and you will wind up paying dearly. The tax code becomes more convoluted every year. That makes every deduction or credit you claim a risk as well as a benefit. Ensure your taxes are legitimate with the help of a capable accountant or tax professional. They’ll help you retain as much of your profits as is legally possible.
Take a look at one common and one not-so-common tax break for your business:
The Elusive Home Office Deduction
Yes, operating a home-based business increases your chances of an audit. But simply claiming the home office deduction doesn’t put you at risk. You’re allowed to write off these expenses, and you should if you regularly work from a dedicated area of your home. The rules regarding the home office deduction apply to business owners whether or not they consider themselves self-employed for tax purposes.
According to the Internal Revenue Service, covered expenses include mortgage interest, taxes, insurance premiums, utility payments, a second (not primary) phone line, internet and other regular and necessary expenses involved in working from your home. Business owners who rent a home or apartment might be surprised to know they can include their rental payments. However, that’s only as long as your lease allows for business use of your space.
There are two ways to claim the home office deduction. Measure the size of your dedicated home office space. Divide it by the total square footage of your home. Multiply your total costs by the percentage to figure the amount of your home office write-off. An alternative, the simplified method, allows for $5 per square foot of your office space. That covers up to 300 feet. Obviously, extraordinarily large deductions might tip off the audit police.
Car Lease Payments and Other Auto-Related Deductions
Car deductions often trigger audits, too. That’s because it’s obvious the owner has made a mistake. Slapping a magnetic advertisement for your business doesn’t give you the right to deduct your loan payments. Nothing does, actually. Are you financing a car in your business name? You’re limited to writing off the interest on the loan and the vehicle’s depreciation.
You might also be eligible for writing off other car expenses based on the percentage of time it’s used for business. Talk to a tax professional about the differences between actual and standard mile deductions and business use.
Lease expenses provide business owners with bigger write-offs and more flexibility. But they can be tricky. If you lease your vehicle, depreciation doesn’t come into play. Have a Terminal Rental Adjustment Clause, or TRAC lease? The IRS considers the entire lease payment a business expense. You’re able to claim whatever percentage coincides with business use. With a typical close-ended lease, special rules apply. Lesson learned? Don’t shy away from claiming car write-offs. Just use the help of a professional to make sure your numbers are right.
Contact our tax professionals at Incompass Tax, Estate & Business Solutions today. We’ll help you decide which business tax write-offs are most relevant to your company. We’ll also help ensure you retain as much of your profits as possible without running the risk of making expensive mistakes.