Worry-Free Small Business Tax Deductions in 19 Minutes

19 minutes is all it takes me per week to have a worry-free tax season for my small businesses. I timed it, literally. You see, I’ve been studying up on how to maximize my small business tax deductions, and I’ve discovered what it takes to keep the IRS happy:

1. Know the rules as they apply to your business and follow them
2. Keep orderly small business tax documents
3. Have a great accountant

Now that might sound like a lot of work, especially the part about knowing the rules and documenting everything, but it doesn’t take long, really.

Discovering Small Business Tax Deduction Rules
So everyone knows that the IRS has rules, lots of them, and that if you don’t follow them you will get in dutch. What most people don’t know, though, is how to interpret those rules so they apply to you and your small business. And being that the tax code is some 18,000 pages long, it’s going to be pretty hard to figure out which small business tax deductions apply to your organization, and how, just by reading the tax code.

That won’t do at all, which is why you need an interpreter. I like Ron Mueller’s tax tips and books because they are easy for me to understand (check them out at www.homebusinesstaxsavings.com). The website is for home businesses but they apply to a lot of small businesses as well, especially if you keep a home office as well as a regular office. The best way to figure out how IRS laws apply to your business to get help from “Cliff Notes” tax interpreters like Ron. I’ve also gotten great information from other tax books for some of my businesses that are very specific, like my horse business.

Small Business Tax Documents - Maintaining Order
If “location, location, location” is the key to success in real estate, then “document, document, document” is the key to success in reducing your tax burden and defending your position, should the IRS ever inquire. While documentation sounds like a lot of work, it’s really not if you get into a routine. As I said earlier, it takes me on average about 19 minutes per week maintain my small business tax documents.

For anything you want to claim as a business expense or tax deduction, you basically have to document the who, what, when, where, and why. If you keep a strong business calendar or activities diary, most of the documentation can go in there. The rest can go into Quickbooks or some other similar bookkeeping software. If you do your documentation during the day or at the end of each work day, it literally won’t take you more than 19 minutes. I have three small businesses, and it only takes me that long.

For more tips, visit Ron’s website or check out some of the relevant blog posts here:

Proving to the IRS That Your MLM Tax Deductions Are Legitimate, Part 1

Proving to the IRS That Your MLM Tax Deductions Are Legitimate, Part 2, Business Travel

Mileage Deduction - IRS Rules for Recordkeeping

Tax Deductible Business Expenses Even Your Accountant Doesn’t Know About

Deductible Business Travel Expenses Allowed by the IRS

Small Business Owners: How Long Should You Keep Tax Documents?

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Tags: IRS, small business tax deductions, small business tax documents

Which Business Entertainment Expenses are Tax-Deductible?

Which Business Entertainment Expenses are Tax-Deductible?

Let’s say you invite a group of potential business partners into town. You take them to lunch, and later to an evening show. Are both the lunch and the evening show tax-deductible expenses for your business?

Yes. Of course, as always, you have to meet certain criteria to claim both of these expenses. The lunch falls under the category of a direct business entertainment expense as long as these four criteria are met:

1. You expect there will be a future benefit to your business as a result of the lunch.

2. The main reason you are entertaining these people is to conduct business.

3. You specifically discuss business or items that will benefit your business.

4. You footed the bill specifically so that you could talk directly with these people, who can possibly benefit your business in the future.

In addition, the lunch has to meet the criteria of being in a “clear business setting.” Places like restaurants, hotel dining rooms, and meeting rooms all qualify as clear business settings. Therefore, lunch meets this criteria.

Associated Business Entertainment Expenses

That takes care of lunch. Now, what about the evening show? In the past, the evening show would only be a legitimate business expense if it took place directly before or after business was conducted, making the evening show a non-deductible expense. However, the IRS has now made the regulation more generous.

These days, as long as the entertainment, in this case the evening show, takes place on the same day as business was conducted, the expenses is considered a legitimate tax deduction. The evening show is considered an “associated entertainment” expense. As with the lunch expense, half the expense of the evening show can be deducted.

Figuring out which business entertainment expenses are tax-deductible isn’t really that complicated. You just have to have these qualifications clear in your mind, and document the nature of each expense just as you would any other normal business expense.

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Tags: IRS, tax deductible business entertainment expenses

Deductible Business Travel Expenses Allowed by the IRS

Deductible Business Travel Expenses Allowed by the IRS

Figuring out which business travel expenses are tax-deductible according to IRS regulations can be tricky, especially if you are running on your own business and you don’t want to visit your accountant with every little question. What gets even trickier is trying to decipher whether travel expenses are deductible if you have combined a business trip with some leisure activities.

This article outlines the basic travel expenses that you can deduct as a legitimate business expense. But before diving in, I need to give you a definition, and that is the definition of a business day.

What Does the IRS Consider a Business Day?

Any of these qualify as a business day:

- a day on which you travel getting to and from your business destination
- a day when you spend at least 4 hours on business related activities
- a day when you have a pre-scheduled appointment

The first two are relatively simple to understand. Just be sure you have documentation to back up your travel, such as ticket stubs. On days when you are spending at least 4 hours on business activities, your activity log serves as documentation.

On days when you have a pre-scheduled appointment, you have to be able to prove that you actually attended the appointment. How do you prove it? If you met someone for a meal and picked up the tab, the receipt from the meal serves as proof. Otherwise, you’ll need to print out emails from before and after the trip to the person or people you met. The email from before your trips proves that the meeting was pre-scheduled. The email sent after the meeting (for instance, thanking them for meeting you) proves that you were at the meeting.

Tax-Deductible Business Travel Expenses

Now that we’ve gotten that definition taken care of, let’s get down to the list of items you can deduct from your business travel. The related IRS regulation or publication is listed after each category.

Business Meals
Half the cost of all your meals during actual business days can be deducted. This is true whether you met another person for a meal and picked up the tab, or you ate alone. (1.162-2(a))

Transportation
This usually makes up a bulk of your business travel expenses. These expenses include rental cars, airline tickets, airport shuttles, taxis, and trains.  (IRS Publication 463)

Laundry
Any dry-cleaning or laundry expenses associated with clothes that you wore on the business part of the trip can be deducted as a legitimate travel expense. (Internal Revenue Ruling 63-145 and 1963-2 C.B. 86)

Lodging
Any lodging costs, such as your hotel bill, are travel expenses that can be legally deducted. (IRS Publication 463)

Tips, Gratuities, Phone Calls
If you had to tip a cabbie, a porter, or a maid, then you can include these expenses as a part of your travel expenses. These should be associated with business days. Business related phone calls, whether local or long distance, may also be deducted. (1.162-2(a) and IRS Publication 463)

Does that sound simple enough? As always, remember that the devil is in the details, or in this case, the documentation. This article outlines all the legal business travel expenses you can deduct, but you really can only deduct these if they are properly documented. So deduct away as long as your document!

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Tags: IRS, tax deductible business travel expenses

Small Business Owners: How Long Should You Keep Tax Documents?

This is a question that bugs a lot of small business owners, and I’ve never been clear myself. I’ve heard the numbers 3 years, 7 years, and 10 years thrown around. I decided it was time to find out for myself, straight from the horse’s mouth, so to speak.

You can find the specific IRS regulations regarding how long you should keep paperwork here:

IRS: How long should I keep records?

Be prepared. The first two paragraphs on this web page are pure legalese. Blah, blah, blah. Basically, there is a “period of limitations” for each situation, with the period being different for each situation.

When You Need to Keep Tax Records Indefinitely
There are only two situations when you need to keep your records indefinitely. If you fall into either of those categories, then you and your small business are in hot water anyway, so count on keeping your records forever (or burning them and running to some South American country!). Those two situations are:

1.    You file a fraudulent return
2.    You didn’t file a return when you should (oops!)

Aside from these situations, you’ll find a complete list of the “period of limitations” for all other situations. The number of years you need to keep your paperwork ranges from 2 to 7 years. Check out the list. If you still have questions, call your accountant to double-check. Remember, the tax code is over 18,000 pages, so be safe rather than sorry!

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Tags: how long to keep tax records, IRS, small business tax documents