Small Business Professor: Forgotten Tax Deductions For Small-Business Owners

By Bruce Freeman
The Small Business Professor.

It’s that dreaded time of year again. One thing you can’t avoid is taxes. But with some sound advice and a few good tips, the weeks before April 15 can be less painful.

I’m sure that it won’t come as a surprise that the idea for this column was the “brainchild” of an accountant friend of mine, Joe Rosenberg, a CPA in Florham Park, N.J.

QUESTION: I own a small local business and am getting ready to do my taxes for 2013. Are there any tax deductions that I may not be aware of that I should consider as I make up my return?

ANSWER: Mike D’Avolio, a CPA and a senior tax analyst with Intuit’s Professional Tax Group, shares a number of deductions you might not be aware of. But he also points out that in general, you’re allowed to deduct the costs of running your business as long as the expenses are ordinary and necessary, such as out-of-town business travel costs.

Be sure to document the expenses and retain any receipts. If the tax issues affecting your business are too complex to handle on your own, please seek out expert tax advice.

One deduction that business owners sometimes miss is a bonus depreciation deduction available in the year that new assets are purchased.

Businesses are allowed to claim a 50 percent bonus depreciation deduction, in addition to the depreciation deduction you would normally take for the asset.

So when you purchase new capital assets, like furniture and equipment, you can take a larger depreciation write-off in the first year. This bonus depreciation isn’t available if the asset that you purchased has been used previously.

Another deduction that’s often overlooked is startup expenses.

Startup costs include amounts paid either to create a trade or business or to investigate the creation or acquisition of a trade or business.

Examples include advertising, employee training and a market survey. The government encourages people to open a new business by allowing a $5,000 write-off for these and similar startup expenses.

Someday, you and your employees are going to want to retire. It’s always a good idea to plan for retirement, especially with generous government incentives.

There are a variety of retirement plans available to small businesses that allow employers and employees ways to save for retirement, and on their tax bills, too.

Even if you haven’t done anything before the end of 2013, you’re allowed to make contributions up until the due date of the return and still get the deduction on the 2013 return.

Many taxpayers are confused about deductions for business use of the home. The IRS now provides a simplified method to determine your expenses for business use of home.

In general, you will figure the deduction by multiplying the area of your home used for business by $5, up to a maximum deduction of $1,500.

And if you have other property that’s used for both business and personal use, such as a vehicle, you are allowed to allocate the expense and deduct the business portion, excluding commuting miles.

Finally, though it’s a credit, not a deduction, don’t forget the credit for small-employer health insurance premiums.

According to the government, businesses have been slow to adopt this credit offered by the Affordable Care Act.

While health insurance that a business provides to an employee has been deductible, small businesses can also claim a credit for providing health insurance coverage for their employees.
Bruce Freeman, a small business consultant, is adjunct professor of entrepreneurship at Seton Hall and Kean universities. He also is co-author of “Birthing the Elephant: The Woman’s Go-For-It Guide to Overcoming the Big Challenges of Launching a Business.”

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