Expenses and Tax Deductions
1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if use an extra bedroom to run your online business, you can make home office deduction for the extra bedroom. 2. Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.Generally, Expenses and Tax Deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. Visit our page on Home Office Deductions for a full explanation of tax deductions for your home office. Travel, Meals, Entertainment, and Gifts Generally, you can deduct all of your travel expenses if your trip was entirely business-related. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination, including tips, cab fare, and other “life on the road” expenses such as dry cleaning. Meals are the only exception. You can deduct only 50 percent of your meals while traveling. If your business trip includes personal side trips or extended stays for a personal vacation, you can only deduct travel expenses used for business-related activities. For example, suppose you live in Atlanta, and then went on a 5-day business trip to New York. You spent 3 days in business meetings, and two days sight-seeing and visiting friends. You can only deduct the costs of the 3 days you spent on business activities. If you take your family on vacation to Hawaii, and conduct business there, you can deduct any expenses that are directly related to your business. However, you may not deduct the entire cost of the trip as a business expense. Business Use of Your Car If you use your car in your business, you can deduct Expenses and Tax Deductions for car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Refer to the Car Expenses Section in IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates. Also, be sure to read Tax Deductions for Personal Vehicles Used for Business Purposes. Other Types of Deductible Business Expenses There are numerous other costs of doing business that qualify as deductions. These include but are not limited to the following:
- Employees’ Pay – You can generally deduct the pay you give your employees for the services they perform for your business.
- Interest – Business interest expense is an amount charged for the use of the money you borrowed for business activities.
- Retirement Plans – Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees’, retirement.
- Rent Expense – Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for the property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
- Taxes – You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
- Insurance – Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.
- Business-Related Education – Such as seminars, classes, educational tapes or CDs, and conventions.
- It must be the property you own.
- It must be used in business or held to produce income. You never can depreciate inventory because it is not held for use in your business.
- It must have a useful life that extends substantially beyond the year it is placed in service.
- It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up.
- It must not be excepted property. This includes property placed in service and disposed of in the same year.
- Most passenger automobiles.
- Most other property used for transportation.
- Any property of a type generally used for entertainment, recreation, or amusement.
- Certain computers and related peripheral equipment.
- Any cellular telephone (or similar telecommunications equipment).
- Depreciation on property placed in service during the current tax year.
- A section 179 deduction.
- Depreciation on any listed property (regardless of when it was placed in service).
- Starting a Business, including the costs of researching a business idea and creating a legal entity
- Getting a Lease on Business Property
- Intangible Assets defined in Section 197 of U.S. Internal Revenue Service Code, including business licenses, permits, patents, trademarks, trade secrets, customer loyalty (goodwill); and the intangible value of physical items such as client lists and accounting and inventory records
- Oil and Gas Exploration
- Pollution Control Facilities
- Research and Experimentation
Expenses and Tax Deductions and Capital Expenditures
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