A tax savvy entrepreneur like yourself probably knows that maximizing your deductible business expenses lowers your taxable profit. After all it is how much money you have left in your pocket that sometimes matter.
Here are some deductions which may help you take a bite out of your taxes this year.
Write-offs for equipment. Businesses usually take years to recoup the cost of equipment through depreciation deductions. Under Sec. 179, however, a business can write off the full cost of equipment in the year it is placed in service. This new small business law increased the maximum deduction for the current year to $125,000 from $112,000. This new law also applies for off-the-shelf software costs through 2010.
Targeted-group workers. The current Work Opportunity Tax Credit (WOTC) could provide small businesses up to 40% of up to $6000 of a qualified worker’s first year wages. Qualification for new hires must be examined since the eligibility for WOTC has been expanded to include more worker groups such as the hiring of disabled veterans. The WOTC has been extended through August 31, 2011.Aim at business debtors. Businesses are urged to increase their efforts to collect past-due amounts from customers to derive some tax benefits. A debt that has become totally worthless in 2007 could be claimed as a deduction this year. It should be noted that a business cannot deduct any part of a bad debt after the year it has become totally worthless. Detailed documentation of collection efforts such as letters, phone calls, emails, and authorizations to debt collection agencies should be maintained to support claims of debt worthlessness.
Manufactured goods. Sec. 199 of the tax code allows a domestic producer to claim “manufacturing deductions.” To qualify for the manufacturing deduction, the law qualifies that activities must be performed in “significant part” in the United States. To satisfy this rule, a business’ labor and overhead costs for manufacturing, production growth and extraction must be more than 20% of the total cost for the property. The maximum deduction for 2007 is 6% of the lesser of taxable income from qualified production activities or taxable income.
Business trips. Don’t forget to write off business-related travel expenses in 2007 such as air fares, lodging, and 50% of the cost of meals. Individuals travelling by car can write off the actual auto expenses, including depreciation (IRS “luxury car” rules apply) or use the standard 48.5 cents per business mile.
Repairs. Minor repairs made before January 1, 2008 could be tax deductible. Repairs involve keeping a property in a normal operating condition without adding appreciably to the property’s value or prolonging its useful life. Individuals must be aware to clearly define repairs from improvements (renovations), which tend to increase the property’s value and prolong its useful life. Caution should be taken about making repairs and renovation at the same time; instead, those should be spaced at least a month apart.
SUV. For heavy vehicles weighing more than 6,000 pounds, a business owner may be able to write off up to $25,000 of the cost especially if that individual needs extra room for hauling supplies or equipment. It is exempted from the IRS’ “luxury car” rule which limits the first year deduction only to $3,060 for passenger cars placed in service in 2007.