As I write this, it is National Small Business Week 2014 (it’s okay, I didn’t know there was such a thing until today either). Now, I understand that by the time this article goes to print that it will no longer be National Small Business Week but in honor of all the small businesses out there, here are my top 5 favorite business-related tax deductions.
1. Organizational Expenses. The cost of getting a business up and running is deductible, for the most part. Before the doors are open, expenses such as utilities, office supplies, repairs and advertising are deductible; $5,000 may be deducted in the first year of business and the remainder is deductible in equal amounts over the next 15 years.
2. Legal and Professional Fees. The IRS understands that running a business is a tough and sometimes confusing process. Therefore, the cost of the invaluable advice given by an attorney or other tax professional or consultant is deductible in the year it’s incurred. Additionally, costs for business books purchased to assist the start-up process are likewise deductible.
3. Travel. Business-related travel expenses, including costs such as plane tickets, rental cars, taxis, lodging, meals, phone calls, gratuity and dry cleaning are all deductible…to a certain extent. The trip must actually be for business purposes. If the trip is a mixture of business and pleasure, or if the family comes along, only expenses related to the owner or employee of the business and also related to the business purpose of the trip may be deducted. For example, the plane ticket to that conference in LasVegas is deductible. Going to see Brittany Spears perform at Planet Hollywood is not.
4. Bad Debts. Depending on the type of business, bad business debts may be deductible. For instance, if the business sells goods and a customer doesn’t pay for those goods received, the cost of the goods sold but for which payment is not received is deductible. If the business provides services like, oh let’s say legal advice, no deductible is allowed for the time devoted to a client or customer who doesn’t pay their bill.
5. Entertaining. That “pink slip” so often used to pick up dinner for clients or customers is deductible up to 50 percent of the cost so long as it is: (1) directly related to the business and business is discussed at the event; or (2) associated with business and the entertainment takes place immediately before or after a business discussion. Surprisingly enough, not all dinners taken with colleagues are deductible.
Simple math: the more tax deductions the business can legitimately take, the more profitable it will be. All business deductions must be substantiated so keep receipts and any other documents to prove such expenses were business related and remember, the next time you take that business trip, tip your waiter a little extra: it’s deductible.
Lindsey J. Wehmeyer is an attorney with Jeffers, Danielson, Sonn & Aylward, P.S., a Wenatchee law firm.