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Deduct It!: Lower Your Small Business Taxes Eighteenth Edition

Deduct It!: Lower Your Small Business Taxes Eighteenth Edition PDF

Author: Stephen Fishman J.D

Publisher: NOLO


Publish Date: November 30, 2021

ISBN-10: 1413329241

Pages: 464

File Type: Epub

Language: English

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Book Preface

Few of us ever test our powers of deduction, except when filling out an income tax form.

—Laurence J. Peter

If you are truly serious about preparing your child for the future, don’t teach him to subtract—teach him to deduct.

—Fran Lebowitz

The goal of this book is to help you, the small business owner, pay less federal tax so you can keep more of your hard-earned dollars. The trick to paying lower taxes is to take advantage of every tax deduction available to you. A potentially huge array of deductions is available to businesses of all sizes, but you need to know they exist and understand how to use them.

Remember, the IRS will never complain if you don’t take all the deductions you are entitled to. In fact, the majority of small businesses miss out on many deductions every year simply because they don’t know about them—or because they neglect to keep the records necessary to back them up.

That’s where this book comes in. We explain all the most valuable business deductions and show you how to deduct all or most of your business expenses. Learn how to take and properly document your travel, home office and operating expenses, depreciation, and other deductions. Even if you work with an accountant or another tax professional, you need to understand business deductions. With this book, you will learn how to keep better records, ask better questions, obtain better advice and—just as important—evaluate any information you get from tax professionals, websites, and other sources. If you do your taxes yourself, your need for knowledge is even greater. This book can be your guide— providing you with practical advice and information you need to rest assured that you are not missing out on valuable deductions.

Now more than ever, you’ll need guidance when it comes to understanding your taxes. In 2017, Congress enacted the most sweeping changes to the tax code in over 30 years when it passed the Tax Cuts and Jobs Act (TCJA), which took effect in 2018. Now, in an effort to stave off economic devastation in the wake of the coronavirus (COVID-19) pandemic, Congress has revised the nation’s tax laws yet again, temporarily suspending many of the harshest provisions of the TCJA. We explain how these changes affect small business deductions including:

•tax treatment of the hugely popular Paycheck Protection Program (PPP) loans

• new rules for deducting net operating losses (see Chapter 1)

•changes to bonus and regular depreciation for improvements to nonresidential real property (see Chapter 5)

•new tax credits for employers who retain their payrolls and provide sick leave and family leave (see Chapter 11)

•new tax credits for self-employed business owners impacted by the COVID-19 pandemic (see Chapter 13)

•how employers can deduct pandemic-related payments to employees (see Chapter 11)

•temporary rules allowing penalty-free withdrawals from retirement accounts (see Chapter 12)

•rules for deducting business-related meals (see Chapter 14), and

•changes affecting charitable contributions by businesses (see Chapter 14).

This book is for anyone who owns a business, including self-employed businesspeople; sole proprietors; professionals who own their own practices; those engaged in part-time or sideline businesses; consultants, freelancers, and independent contractors; owner-employees of small corporations; partners in business partnerships; and members of limited liability companies. If you’re an employee of a business you don’t own, this book doesn’t cover your situation. Nor is this book a tax preparation guide—it doesn’t show you how to fill out your tax forms.

By the time you do your taxes, it might be too late to take deductions you could have claimed if you had planned the prior year’s business spending wisely and kept proper records. To avoid this fate, you can (and should) use this book all year long to make April 15 as painless as possible.

Table of Contents


1Tax Deduction Basics

How Tax Deductions Work

How Businesses Are Taxed

The Value of a Tax Deduction

What Businesses Can Deduct

Businesses That Lose Money

2Are You Really in Business?

What Is a Business?

Tax Consequences of Being a Hobbyist

3Start-Up Expenses

What Are Start-Up Expenses?

Starting a New Business

Buying an Existing Business

Expanding an Existing Business

When Does a Business Begin?

Claiming the Deduction

If Your Business Doesn’t Last 15 Years

Organizational Expenses

4Business Operating Expenses

Requirements for Deducting Operating Expenses

Operating Expenses That Are Not Deductible

Operating Expenses Paid With Paycheck Protection Program Loans

Tax Reporting

5Deducting Long-Term Assets

What Is a Long-Term Asset?

Deducting Inexpensive Property: The De Minimis Safe Harbor and Materials and Supplies Deduction

Deducting Long-Term Personal Property: Bonus Depreciation, Section 179, Regular Depreciation

Bonus Depreciation

Section 179 Expensing

Deducting Repairs and Improvements

Regular Depreciation

Deducting Real Property

Intangible Assets

Tax Reporting and Record Keeping

Leasing Long-Term Assets


What Is Inventory?

Deducting Inventory Costs

7Office Expenses

Qualifying for the Home Office Deduction

Corporation Employees

Calculating the Home Office Deduction

Simplified Home Office Deduction Method

IRS Reporting Requirements

Deducting an Outside Office or Workplace

8Car and Local Travel Expenses

Deductible Local Transportation Expenses

The Standard Mileage Rate

The Actual Expense Method

Other Local Transportation Expenses

When Clients or Customers Reimburse You

Reporting Transportation Expenses on Schedule C

Corporations, LLCs, and Partnerships

9Business Travel

What Is Business Travel?

What Travel Expenses Are Deductible

How Much You Can Deduct

Maximizing Your Business Travel Deductions

How to Deduct Travel Expenses

Travel Expenses Reimbursed by Clients or Customers

10The Pass-Through Tax Deduction

You Must Have a Pass-Through Business

You Must Have Qualified Business Income

You Must Have Taxable Income

Deduction for Taxable Income Up to $164,900 ($329,800 if Married)

Deduction for Income Above $164,900 ($329,800 if Married)

Taking the Pass-Through Deduction

Strategies to Maximize the Pass-Through Deduction

11Hiring Workers

Employees Versus Independent Contractors

Tax Deductions and Credits for Employee Pay and Benefits

Reimbursing Employees for Business-Related Expenditures

Employing Your Family or Yourself

Tax Deductions When You Hire Independent Contractors

12Retirement Deductions

Why You Need a Retirement Plan (or Plans)

Employer IRAs

Keogh Plans

Solo 401(k) Plans

13Medical Expenses

The Affordable Care Act (ACA)

The Personal Deduction for Medical Expenses

Deducting Health Insurance Costs

Sick and Family Leave Tax Credits for the Self-Employed

Tax Credits for Employee Health Insurance

Adopting a Health Reimbursement Arrangement

Health Savings Accounts

14Additional Deductions


Business Bad Debts

Casualty Losses

Charitable Contributions


Dues and Subscriptions

Education Expenses

Entertainment and Meals


Insurance for Your Business

Interest on Business Loans

Legal and Professional Services

Taxes and Licenses

15Record Keeping and Accounting

What Records Do You Need?

Records Required for Specific Expenses

How Long to Keep Records

What If You Don’t Have Proper Tax Records?

Accounting Methods

16Staying Out of Trouble With the IRS

What Every Business Owner Needs to Know About the IRS

Eight Tips for Avoiding an Audit


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