Last Minute Tax Tips
Before April 15th, it is important to work with your accounting team to identify tax deductions that will lower your tax liability. For instance, your out-of-town trip last year to work on a long-term project with a new client may have cost you a fortune, but there are deductions you can elect for those costs. Being tax savvy and carefully reviewing your business expenses from 2004 can make a big difference in what you may owe or receive from Uncle Sam. Fortunately, there are a number of old, revised, new and extended tax deductions that may lower taxable income and translate into greater tax savings.
- Business Start-Up Costs and Organizational Costs: Business start-up costs and organizational costs of corporations and partnerships paid or incurred after October 22, 2004, can be deducted up to $5,000. This is phased-out when start-up costs reach $50,000. When this happens, the amount of start-up costs are amortized over a period of 180 months. Also, the amortization period for certain business start-up costs and organizational costs paid or incurred after October 22, 2004, has been increased to 15 years.
- Business Travel, Meals and Entertainment Expenses: When you travel for business, you can deduct the cost of plane fare, taxis, lodging and 50% of meals and entertainment costs. Other expenses qualify as well, such as the cost of dry cleaning, costs for shipping product samples/displays for your business trip, telephone calls and computer rental fees. When you entertain present or prospective customers, you may deduct 50% of the related cost if it is "directly related" to the business and business is discussed or "associated with" the business and the entertainment takes place immediately before or after a business discussion.
- Tsunami Relief Contributions: If your company made a cash contribution on or before January 31, 2005 to a qualified charity raising money for victims of 2004 Southeast Asia Tsunami disaster, your business can take an immediate tax break as an itemized deduction on your 2004 tax return. You can also take this as an itemized deduction on your individual 2004 return for any personal cash contributions you made to a qualified Tsunami relief charity. Check www.usaid.gov for a list of qualified charities.
- Home Office: To qualify for a home office deduction, you must use your home office on both an exclusive and regular basis as your principal place of business or as a place of business to meet with clients. If you qualify, you may deduct depreciation allocated to your business use of the area in your home and other indirect expenses of operating your home office. You may also claim this deduction if your home office is the only place for conducting the administrative or management activities of your business or if only minimal administrative work is done outside your home office.
- Bad Debts: You may also claim a deduction for a business debt related to accounts or notes receivable if you included the amount owed in your gross income for the year you are claiming the deduction, or in a prior year. Also, you must write-off the bad debts in the year you are claiming the deduction. If you use the cash basis method of accounting, you cannot claim a bad debt deduction if someone fails to pay you for your services.
- Depreciable Property Deduction: Small business taxpayers are permitted to deduct up to $102,000 of the cost of qualifying property purchased and placed in service in 2004. Please note that passenger vehicles such as sports utility vehicles under 6,000 pounds are not eligible to be expensed and passenger vehicles between 6,000 and 14,000 pounds can be expensed up to $25,000. Additionally, taxpayers are permitted to make or revoke an election on an amended return for those taxable years without the consent of the Commissioner.
- Health Insurance Premiums: If you are self-employed, you can deduct as an adjustment to gross income, 100% of health insurance premiums for yourself, your spouse and your dependents as a business expense, subject to certain requirements.
- Casualty losses in a Presidentially Declared Disaster Area: Unfortunately, last year was a busy year for natural disasters. Casualty losses are generally deductible only in the year the casualty occurred. However, if you have a deductible loss from a disaster in a Presidentially declared disaster area, you can choose to deduct that loss on your tax return for the year immediately preceding the year of the casualty. If you have already filed your return for the preceding year, the loss may be claimed in the preceding year by filing an amended return, Form 1120X for corporations. The election to deduct a 2004 disaster loss on your 2003 return must be made on or before the due date (without extensions) of the 2004 return. You can revoke this choice within 90 days after making it by returning to the IRS any refund or credit you received from making the choice. If you revoke your choice before receiving a refund, you must return the refund within 30 days after receiving it for the revocation to be effective.
- Interest Payments: If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible. This shouldn't be incentive to get into debt, but can help to offset the cost of loans you may need to grow your business.
Read more of Mr. Parker's article here.
For information about the tax tips in this article, please visit www.irs.gov.