If you own your own small business, you know about deducting your business expenses. To be deductible, the Internal Revenue Service says an expense needs to be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful or appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
But unless you are meticulous about keeping your receipts and thinking about your business, you may miss many small deductions that can really add up by the end of the year. For instance, think about your car. You probably try to keep track of the mileage you drive your car for business appointments. But do you also keep track of the mileage you drive to the bank, to the post office, or to the office supply store? These miles can really add up. You should also consider how you can make regular errands into business trips.
For instance, you stop by your local Chinese take-out to pick up lunch. Take some flyers and business cards with you. Ask the business owner if you can post the flyers or if he can pass out the cards for you. PRESTO! A regular errand to pick up lunch has just turned into a business deduction. Your "purpose" to visit that business was to explore a new advertising avenue. You just happened to pick up lunch while you were there. See how easy it can be?
Because it's easier, most small business owners just take the standard mileage deduction. But in some instances, it makes more sense to deduct your actual expenses, especially if you start your business while driving an older car which needs some bigger maintenance expenses during the year. You should consider keeping track of these other expenses so you can compare your tax deduction:
-- gasoline
-- oil changes, air filters
-- anti-freeze
-- radiator flush & fill
-- windshield wipers
-- windshield washer fluid
-- tire rotation
-- carwash
-- license plates
-- driver's license renewal
-- insurance
-- parking
-- tolls
-- car rentals
-- taxis and chauffeurs
-- damage to auto not covered by insurance
-- tires
-- tire rotation
-- if your car is used solely for business, car payments and depreciation
-- car repairs
Now, each cost would be deductible in the same percentage as the percentage of business usage vs. personal usage.
Since every business is different, make sure you check with your tax preparer or attorney to make sure the expense is appropriate for your situation. But keep those receipts! If you don't, you may pay too much in taxes.
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