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Five Easy Tax Deductions for Entrepreneurs

January 10, 2010

You can make and save money in business by being strategic.  Investing in the right marketing mix will help you bring in more revenue; while having a tax strategy—i.e. knowing what is deductible and spending only, or primarily, on things that are—will help you save money.  Another cool point is, if you have a job and a business too, your business tax deductions can reduce the amount of tax you pay on the income generated from your job.

There are hundreds of tax deductions available to entrepreneurs.  My friend Roni Deutch, “The Tax Lady” (you can also follow Roni on Twitter @ronideutch) can answer your specific questions on any tax deduction imaginable but here’s the run down on five easy ones that can save you money:

  1. Home office: Deduct the cost of a space in your home or apartment that you specifically use for business.  This includes the cost of utilities and the percentage of rent or mortgage for the space.  So, if your home is 1,500 square feet and your home office is  15o square feet—ten percent of your total abode—you are allowed to deduct 10 percent of your utilities and your rent/mortgage for maintaining this space for business use.  IRS Publication 587, “Business Use of Your Home”, details the specifics of this deduction.
  2. Business use of your vehicle: When you drive your car to business meetings or presentations, to prospect or make sales calls, to meet a client or drop off products—or whatever the business activity may be—that’s business use of your car and it’s deductible.  You can either claim a deduction based on your total business mileage for the year or for your actual car expenses.  The 2010 IRS standard mileage deduction rate is $0.50 per mile so if you were to drive 7,000 business miles and opt for this way of making the deduction, it would total $3,500.  If you opted for actual expenses then you would deduct the total cost for the year of all your oil changes, gasoline, tire rotation, general maintenance, parking fees, insurance, etc.  You can take whichever one is higher—and whichever one you want—but not both.  IRS Publication 463, “Travel, Entertainment, Gift and Car Expenses,” details this deduction.
  3. Gifts: If you give gifts to people throughout the year, have your business sponsor them and you can deduct up to $25 of the cost of each individual’s gift each year.  This is a straightforward deduction but for additional details on it, check out IRS Publication 463.
  4. Entertainment: Taking clients, potential customers and business partners or acquaintances out for entertainment—or engaging in entertainment on your own for business networking purposes—is deductible.  Meals as entertainment are deductible at 50 percent of your total cost and this includes food, beverages, taxes and tips.  And when you’re on travel for business, any entertainment—meals included—is 100 percent deductible!  See more details regarding this deduction in IRS Publication 463.
  5. Marketing: To build your business you have to reach out to customers.  Well, the cost of doing this is deductible.  So, business cards, t-shirts, commercials, videos, advertisements, product demonstrations and the cost of any other kind of marketing is deductible in business.  IRS Publication 535, Business Expenses, details this deduction.
One Comment leave one →
  1. James Doyle permalink
    May 19, 2010 6:35 pm

    Five Easy Tax Deductions for Entrepreneurs was very informative!!

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