Every penny counts, especially in today’s economic environment, so this tax season be sure you are not forgoing any tax write-off opportunities. As a small business owner, you know you can deduct most expenses you incur in business. However, many small business owners may overlook some write-offs that can add up to big tax savings. Here are some tips to keep in mind when it comes to tax write-offs.
The Little Things
It’s easy to overlook or forget about some deductions you may be entitled to. Don’t! Be sure to claim all allowable write-offs, including:
- Tips related to deductible expenses, such as for parking, meals and redcaps.
- Incidental expenses on business trips, including the cost of shipping materials to your business destination, passport fees, and dry cleaning or laundry.
- Tax preparation costs you paid in 2008 for 2007 preparation, including CPA fees, software, and business and tax books.
The tax law changes each year. Learn what’s new so you can take advantage of these write-offs. For example, in 2008, you can deduct more for the cost of business use of your personal car—50.5¢ per mile for business driving in the first half of 2008 and 58.5¢ per mile for business driving in the second half of the year (in 2007, the mileage rate was only 48.5¢ per mile). Other law changes for 2008 to note include:
- First-year expensing for the cost of buying computers, software, office furniture, equipment and machinery up to $250,000 (compared with a $125,000 limit in 2007).
- Bonus depreciation so that half of all new purchases of equipment and other eligible property placed in service in 2008 can be depreciated (in addition to any first-year expensing and the regular depreciation allowance).
- Contributions to Simplified Employee Pension (SEP) plans are deductible up to $46,000 (compared with $45,000 in 2007). These plans can be set up and funded for 2008 up to the extended due date of the 2008 return.
Tax credits are more valuable to you than tax deductions. Each $1 of a tax credit saves you $1 in taxes; each dollar of a tax deduction is worth only as much as the tax bracket you’re in. So a $1,000 tax credit saves you $1,000 in taxes, while a $1,000 tax deduction for someone in the 25% tax brackets saves only $250 in taxes.
The tax law increasingly provides write-off opportunities in the form of tax credits. You may be eligible for a tax credit if you…