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Tax Tidbit 7/15/08: 2008 Planning - Commonly Missed Business Tax Deductions

Many business taxpayers fail to deduct otherwise eligible business expenses or fail to fully deduct qualifying business expenses. As a result, millions of dollars are overpaid to the IRS every year. Below is a list of commonly missed deductions or deductions that you may not be fully utilizing. You may wish to carefully examine your records to determine if you may be missing any of these deductions.  Please be aware that some deductions apply only to self-employed individuals and some deductions apply only to shareholders of corporations.

• Home Office Deduction: If you use part of your home as a home office, you may be entitled to deduct expenses related to the home office based on the percentage of square footage the home office occupies. Related expenses include mortgage interest, property taxes, utilities, and repairs, etc.

• General Business Expenses: If you use your personal funds for business expenses such as office supplies, these are qualifying business expenses, which you may deduct.

• Imputed Interest on Shareholder Loans: If you loaned money to your business, you are required to charge interest on the loan or interest will be imputed to you. While you are required to report the interest as income on your personal return, your business is permitted a deduction for the interest paid. If any of the interest amounts are improperly characterized as wage income to you, your business may be overstating its employment tax liability. By recharacterizing these amounts as interest expense, your business may be able to reduce its employment taxes and possibly obtain a refund.

• Meals and Entertainment Expenses: If you have used your personal funds to pay for meals and entertainment expenses relating to your business, these expenses qualify as a business deduction, subject to limitations.

• Personal Assets Converted to Business Use:  If you have contributed personal assets, such as a computer, the fair market value of these assets qualify as a business deduction, subject to depreciation limitations, beginning with the date of conversion.

• Self-Employed Health Insurance: As a self-employed taxpayer, you may deduct 100 percent of your health insurance premiums.

• Communications Expenses: Expenses related to the business use of your personal telephones, cellular phones, and internet connections may be deducted.

• Automobile Expenses: Mileage and other related automobile expenses might be deducted when your personal vehicle is used for business purposes.

If you have any questions about your business deductions or whether certain expenses qualify as business deductions, please contact Andrew D. Ross, CPA of Bedard, Kurowicki & Co., CPA's, PC (908) 782-7900 x 113 or adr@bkc-cpa.com, or visit www.bkc-cpa.com.

Released 7/15/08