Why Own a Small Business Part 3 of 4
As we continue down the road of “Why Own A Small Business”, we get to part three where a greater understanding of what’s deductible is expounded upon.
If you missed my first two articles, you’ll want to catch up:
Applicable Ordinary and Necessary Expenses
You can minimize your Business’s income tax liability by deducting all applicable “ordinary and necessary” business expenses.
Ordinary and necessary business deductions, or common operating expenses (as they are sometimes called), include all the expenses required to operate your business.
These deductions are not particularly difficult to understand, nor do they require any special knowledge to implement properly; however, some do require the application of specific tax strategies to maximize the tax advantage. Some ordinary and necessary expenses vary from business to business; however, most of them are deductible without regard to your business type.
Business expenses that are considered “ordinary and necessary” to a small business fall into two distinct categories:
(1) those that are expensed, meaning that the entire cost of the item is deducted (expensed) in the year in which it is incurred, and
(2) those that are capitalized, meaning that the entire cost of the item is deducted (expensed) over its theoretical useful life (as determined by the IRS). Following are specific examples of “ordinary and necessary” small-business expenses.
Those that are expensed include:
Professional services: accounting, attorney, consultant
Logistical support: alarm services; online services; dues and subscriptions; rent, cleaning, utilities, telephone; office supplies; postage, freight, and shipping; printing; repairs and maintenance
Financial: bank service charges, interest expense, and other fees
Office expenses (outside rent, home office expenses, etc.)
Your business can take the number of business miles driven using a specific car multiplied by 44.5 cents per mile for 2016, and you can do so very year. Your business can also deduct all the actual expenses of owning and operating a specific car for business purposes.
(Note: The actual cost of the car is deducted under capitalized expenditures.)
For current tax law visit https://www.irs.gov/uac/car-and-truck-expense-deduction-reminders
Your business can deduct all the actual expenses of owning and operating a specific car for business purposes. Entertainment
· Retirement funding
· Hiring your family
· Tax-free owner benefits (company cars, long-term care, life insurance, etc.)
· Wages and salaries
· Retirement plan contributions
· Employee benefits (child care, education, adoption)
· Business insurance
· Medical health insurance (for the business owner(s) and employees)
· Payroll taxes
· Other taxes (e.g., sales taxes)
· Start-up and organizational expenditures incurred (verify tax year you begin your business)
As you can see by using the many deduction under the IRS code there are many, many deductions you can take as a home based business owner.
Most people are not in a position to fork out thousands of dollars for a small business brick and mortar start up.
The best solution for positioning yourself to take advantages of tax benefits allowed for small business owners is to have a home based business.
There are many great home based business options for you to consider as some of the best products on the market are offered through this marketing style. Consider the products, commissions paid and long term leverage with residual income along with the stability and reputation of the company.
I have a home based business in my portfolio and if you’d like to know more about that, just reach out and we’ll chat.
All The Best,
Disclaimer: Always verify with your tax adviser current federal tax law before making any tax decisions.