Deduct It!: Lower Your Small Business Taxes Eighteenth Edition

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.