Those Small Business Deductions
BOSTON (CBS) - There are many deductions for the self-employed.
Let's start with your car. You can either deduct the actual expenses of driving your car or you can use a mileage allowance set by the IRS. Currently for this year its 56 cents a mile for business travel.
If you choose the actual expenses, you would deduct gas, oil changes, new tires, insurance, excise tax, etc. With the mileage allowance, you only need to keep track of the miles you travel for business. You get to deduct tolls and parking fees no matter which method you choose.
If your business owns the car you are allowed to depreciate it each year as well.
Health Insurance Premiums: You can deduct 100% of the cost of your premiums. This is a nice perk!
Social Security: As a self-employed individual you will be responsible for paying both the employee's and the employer's share of Social Security and Medicare taxes on your earnings. However, you will get a deduction for the employer share's you pay.
Home Office Deduction: You may be eligible if you use the office exclusively and regularly in your business. There must be no other place that you conduct business. For more information, see IRS Publication 587, Business Use of Your Home. Also starting last year the IRS instituted a simple method to figure your deduction based on square footage ($5 a square foot that you can use with a maximum of 300 square feet).
Travel: You can deduct your travel expenses if they are legitimate. If you are on vacation and make a sales call you cannot write off the whole trip. A part of the trip though. If you add a weekend away to your business trip you should deduct only the business portion of the trip.
Entertainment: There are limits as to what you can deduct under meals and entertainment. This is an area that the IRS feels is abused by small businesses so keep good records and always be able to justify an expense. Who you took out to dinner and why you took them out to dinner.
Two IRS publications that are useful for small businesses are, Publication 535, Business Expenses and Publication 463, Travel, Entertainment, Gift and Car Expenses.