| While businesses are entitled to claim deductions on such expenses as automobiles and entertainment, specific regulations must be met before the deduction can be claimed. -
Automobile Expenses ” If you use your car, van, or truck for business, there are two ways to deduct business-use charges. The most popular is the mileage deduction. The IRS permits 34.5 cents per mile in 2001 and 36.5 cents per mile in 2002 for business travel in a given year. The second method is to itemize your automobile deductions: Use a depreciation deduction on the cost of your automobile and then add to that all of the costs related to running that vehicle, such as gas, oil, tires, repairs , parking and garage charges, tolls, insurance, and license and registration charges. The deduction will then be based on a percent of total business miles divided by total miles driven everywhere. No, no ”the IRS won't let you deduct parking tickets so you had better keep plenty of parking meter change in your vehicle. -
Education ” The IRS permits you to deduct education expenses as long as they are related to your business, trade, or occupation . The IRS states that to claim this deduction, the conference, workshop, seminar, or college course must either maintain or improve your skills or be a continuing education requirement for your profession (i.e., doctors , psychologists, realtors). Sorry ”the IRS does not allow you to deduct education expenses if you are changing careers or starting a new business. In addition, courses to meet the minimum educational requirements for your education are not deductible (i.e., law or medical school). -
Health Insurance ” You can deduct health insurance if you are self-employed. As it stands now, a self-employed individual may deduct 70 percent in 2002 and up to 100 percent in 2003. Add the remainder you can't deduct to your itemized medical expenses. If the amount of medical expenses is then over 7.5 percent of your gross income, the remaining medical expenses are deductible. -
Retirement Plans ” A self-employed person can claim deductions made to retirement plans such as an Individual Retirement Account, Simplified Employee Pensions, and Keogh plans. Income earned from retirement plans is tax deferred. Contributions made may be tax deductible. -
Entertainment ” The IRS allows a deduction of 50 percent on entertainment expenses if they are directly related to your business. The key is to keep good records documenting your business entertainment expenses. You can deduct restaurant charges, cocktails, and even theater tickets. When taking a client out for a meal, make sure to keep the receipt and record the date, time, place, and purpose for your meeting. Planning a business party? Along with the receipts for catering, flowers, and hired help, keep the guest list as part of your business documentation. Keep documentation explaining the reason for the dinner or party ”just holding onto the receipts won't cut it. -
Gifts ” The IRS allows you to make deductions for business gift giving. Gifts are deductible up to $25 per person per year. -
Start-up Expenses ” If you are just beginning a new business, the IRS will permit you to deduct up to $25,000 in 2002 for start-up expenses such as business equipment, phone systems, computers, and fax machines. It is considered a first-year expense deduction. The alternative choice is to deduct the cost of the business equipment using IRS tax code depreciation schedules over a period of several years .  |
