HR Newsletter

Small Business Tax Breaks Not to Miss

If you're one of the many small business owners who has yet to file taxes before this year's April 17 deadline, don't worry! There's still time to file…and possibly save money on your taxes. Whether you do it yourself or hire a professional, here are some deductions you should consider. As ADP TotalSource cannot provide tax advice, we recommend that you consult with a tax professional to determine if these deductions are available to you.

Your vehicle – You can deduct the costs of operating and maintaining a vehicle that you use for business. Keep in mind that you can only deduct the portion of your vehicle costs that are directly related to company use. For example, if you use your SUV for business purposes 70% of the time, then you can deduct 70% of the costs you incurred for fuel, oil, and repair. You can either save your receipts for an exact deduction, or keep track of your mileage to use the standard mileage allowance. Bonus break: did you purchase a "heavy" vehicle for your business in 2006? If so, you may deduct up to $25,000 of the purchase price for a "heavy SUV" or up to $112,000 for the purchase of a "heavy" non-SUV (some pickup trucks, delivery vehicles, and passenger vans qualify). These Section 179 deductions are in addition to regular depreciation deductions.

Travel and entertainment – Your business-related travel costs (including transportation, lodging, and rental cars) may be deductible. And while some entertainment costs, such as meals with clients, can be deductible, there are limitations.

Your home office – Don't forget about the home-office deduction if you use part of your home for business on an "exclusive and regular" basis. This means you only use that part of your home for business purposes, and you have no other primary workplace. There are exceptions for daycare providers, and for workers who store samples or business inventory. Even if you don't qualify for the home-office deduction, you might still be able to take a deduction for other business expenses you incur while running your company out of your home, such as a business phone and/or fax line. Bonus break: don't forget the one-time opportunity to claim your telephone excise tax refund. If you file individually or Schedule C, you can claim your actual tax payments or a standard amount based on the number of exemptions in your household. Businesses can claim a refund of their actual tax, or use a simple formula provided by the IRS. Use IRS Form 8913 (Credit for Federal Telephone Excise Tax Paid).

Family employees – By hiring your spouse, children, or parents to work for your company, you can transfer business income to a family member, lightening your tax burden. This enables you to move company dollars from higher tax rates to lower ones.

Finally, there are several deductions that can be very useful in specific situations. If your company generally "makes" something in the United States, look into the domestic production deduction, which may allow you to deduct a portion of your payroll for keeping jobs in the U.S. If you purchased tangible property in 2006 (such as machinery, computers, or furniture), you may be able to write off up to $108,000 for those expenses without having to amortize the purchases over several years or factor in depreciation. And, if you continued or started an operation in certain hurricane-damaged areas of the Gulf Coast, you may be eligible for increased deductions as a result of tax breaks aimed at reconstruction in hard-hit communities. Remember, always discuss possible deductions with a tax professional.

"Five Smart Ways to Slash Your Taxes," Sam's Club Source. February/March 2007.
"Tax Advice for Small Businesses," Miami Herald, January 29, 2007.
"New Tax Breaks Encourage Businesses to Get ‘Go-ing' in Hurricane-Damaged Gulf Coast Region," National Federation of Independent Business. www.nfib.com.
"Tax Breaks for Small Businesses," Smart Money. www.smartmoney.com
"New Tax Breaks for 2007," www.inc.com.
"Deduct This," National Federation of Independent Business. www.nfib.com.

Back to HR Newsletter Archive