Though your taxes may be due on April 15, now is the time to maximize your available deductions. Business expenses, which can be deducted from your taxes, are an easy way to reduce the amount your will fork over the IRS, but there are a few things to know before claiming these deduction. The tax code allows people to deduct the cost of doing business from their gross income, effectively reducing the amount of income that is taxable.
By lowering your taxable income with deductions, your taxable profit is lower, and you will pay less in taxes. And that’s in addition to the business expenditures you will benefit from anyway: a business trip, a company car, a Shoeboxed account for organizing receipts, etc.
But of course, claiming these deductions means following the rules, so it is good to know what the law states.
The meat of this particular tax code is as follows:
Internal Revenue Code § 162. ‘Trade or business expenses.’
(a) In general. There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
In order to claim the deduction on your upcoming taxes, the expenses have to be incurred before the end of the taxable year, or before January 1, 2009.
Another important detail is that such deductions not count for self-employment tax purposes. When determining net earnings from self employment, deductions are not allowed under Section 162.
This blog does not establish any tax practitioner/client relationship. The blog entries are written by myself, Jonathan James, Enrolled Agent. The entries are for information only and do not constitute tax advice, nor do they serve as legal advice. There is no intent to create, nor does this blog site constitute, a professional tax practitioner/client relationship. You need to consult with your tax professional prior to acting on any item of information you learn on this site.
Tax laws change from time to time, and are different in various locations.