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Business Tax Frequently Asked Questions (FAQs)

What is and isn't a tax deductible business expense?
If I use my car for business, how much of that expense can I write off?
What is the difference between current and capital expenses?
I am planning a trip to a trade show. Can I take my family along for a vacation and still deduct the expenses?
I work in my home part time. Can I take the home office tax deduction?
I want to start my own small business. What do I have to do to keep out of trouble with the IRS?
Does incorporating a small business start-up offer tax breaks?
Is it safe and sensible for me to keep my own books and file my own tax returns?
Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
Must a partnership or corporation file a tax form even though it had no income for the year?

 

What is and isn't a tax deductible business expense?
Just about any "ordinary, necessary, and reasonable" expense that helps you earn business income is deductible.

If I use my car for business, how much of that expense can I write off?
You can calculate your vehicle deduction using the standard mileage method or the actual expense method. The standard mileage method is more commonly used because the record-keeping requirements are much simpler. Under this method, the IRS determines the amount you can deduct per mile. Effective January 1, 2011, the rate is 51 cents per business mile driven.

What is the difference between current and capital expenses?
Current expenses can be deducted from your business's total income in the year you incur them. Expenditures for things that will help generate revenue in future years -- a desk, a copier, or a car, for example -- are called capital expenses and must be written off over their useful life. Usually that period is three, five, or seven years, according to IRS rules.

I am planning a trip to a trade show. Can I take my family along for a vacation and still deduct the expenses?
If you take others with you on a business trip, you can deduct business expenses for the trip, but no more than if you were traveling alone. If, for example, your family rides in the back seat of the car and stays in one standard motel room, then you can fully deduct your automobile and hotel expenses. But you can't claim a deduction for your family's meals and such.

I work in my home part time. Can I take the home office tax deduction?
If you run a business out of your home, you may be able to take the home office deduction. This allows you to deduct a portion of your rent or mortgage costs, as well as some related costs, such as utilities, insurance, and remodeling.

I want to start my own small business. What do I have to do to keep out of trouble with the IRS?
Start by learning record keeping, record keeping, and (you guessed it) record keeping. IRS studies show that poor records, not dishonesty, cause most small business owners to fail to comply with their tax reporting obligations and to lose at audits, with resulting fines and penalties.

Does incorporating a small business start-up offer tax breaks?
Keep in mind that most corporate tax benefits flow to profitable, established corporations, not to start-ups in their first few years. For example, corporations can offer more tax-flexible pension plans than sole proprietors or partnerships, but few start-ups have the cash flow needed to take advantage of these tax breaks.

Is it safe and sensible for me to keep my own books and file my own tax returns?
To make sure you're on the right track, it's a good idea to run your bookkeeping system by a savvy, small business tax pro. With just a few hours of work, he or she should help you avoid most common mistakes and show you how to dovetail your bookkeeping system with tax filing requirements.

Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
A husband and wife do NOT need to file as a partnership.

Must a partnership or corporation file a tax form even though it had no income for the year?
A Corporation and a Partnership MUST file each and every year it remains open, regardless of income.

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