Get Your Small Business Tax Deductions In Order

Tax Season And Deductions For Small Businesses
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Note: This is a guest post by Bert Seither, Director of Operations at Corporate Tax Network. We’re honored to have him on the blog.

Create an Expanding File for Deductions

Now, create a deductions folder.  This folder is going to include all of your deductions for property taxes, charitable giving and mortgage interest.  There can certainly be more, but you get the idea.

  • Mortgage Interest – For most itemizers, the mortgage interest is the largest deduction on Schedule A.  Your bank will send you a form 1098.  If you made an extra mortgage payment at the end of last year to increase that interest amount, make sure it’s counted. Sometimes lenders use automatic reporting programs that overlook extra payments. You can still claim the extra interest; just make sure you document it in case the IRS follows up.

Mortgage interest isn’t limited to your primary residence. If you have a vacation home that serves as your second home, interest on that loan will be on a separate Form 1098.

And don’t forget the interest you paid on a home equity loan.  That will be another 1098.

  • Real Estate and Property Taxes – Real estate taxes may be reported on your 1098 from the bank or it may be a separate bill from the city or county.  If your state or county charges a personal property tax, keep that receipt. Most often, this tax is on autos, so if you pay, make sure the collecting tax agency sends you a statement showing how much so you can put it on your Schedule A.
  • Medical expenses – Keep tabs on the receipts and fees for all things medical. This includes (but is not limited to) your out-of-pocket health insurance premiums, dentist visits, and eyeglasses and co-pays.  Your expenses have to exceed 7.5% (10% beginning in 2013) of your adjusted gross income before they give you any tax benefit.  But even if you may not be able to use it on your tax return, you will need the receipts if you have a Flexible Spending Account through your employer.
  • Education Credits – For your children who are enrolled in college, you will receive a form 1098-T for the tuition and fees you paid.  They can be used to claim a credit for college expenses if they meet the requirements established by the Internal Revenue Service.
  • Work Expenses – Did you look for a new job last year? Kept your job, but had to shell out for work-related items and never got paid back? Move to take a new job?

All of these situations can help reduce your tax bill provided you have the documentation. In the case of job searches, find those receipts for anything related to your hunt — as long as you are looking for work in the same field.

If you kept your current job but had to pay for some items that your boss did not reimburse you for such as travel expenses, uniforms, union dues, tools, equipment and professional subscriptions, these can be deducted as miscellaneous items on Schedule A. As with medical expenses, there is a limit of 2% of adjusted gross income that has to be exceeded before it provides a tax benefit. Again, you will need the receipts so go through your paperwork collection carefully.

  • Casualty and Theft Losses – If you suffered an economic loss from a casualty or theft, you will need to prove your loss in order to claim a deduction.  Collect records of the current fair market value of the property and keep insurance records if you are reimbursed.
  • Gambling Losses – These can be used to offset your gambling winnings.  Generally, if you win more than $600 from gambling, $1,200 or more from bingo or slots or $1,500 or more from Keno, you will receive form W-2G by January 31.  You can reduce the amount of taxable income if you have receipts for losses up to amount of winnings.
  • Cancellation of Debt – If all or a portion of your debt is forgiven by a lender, the amount is reported on Form 1099-C. The amount forgiven should be reported as taxable income. However, if the debt is related to your primary residence, you are insolvent or you filed bankruptcy, all or a portion of the amount forgiven may be excluded from tax.  Especially if you are insolvent, it will be important to have documents to prove that point.
  • Child Care – If you paid a child care provider, you will need receipts for those payments as well as the name, address, and social security number of the provider.
  • Charitable donations – Cash donations can be deducted but you need a receipt from the organization.  Non-cash charitable contributions, such as clothes, books, house ware and furniture can also be deducted but you will need a detailed description of the items that are donated and a fair market valuation.  Since Goodwill and other organizations will not value your donations, simply getting a pre-printed receipt is not sufficient to sustain the deduction. Non-cash donations of $5,000 or more will need to be valued by a qualified appraiser.  So if you do not have those receipts, this would be a good time to track them down.

If you drove your automobile for a charitable purpose, that too can be deducted but you would need to maintain a mileage log that shows the miles traveled and the purpose.

  • Miscellaneous deductions – Any money you spend on financial planners, tax advisers and tax preparation (even computer programs) can be a tax write-off. Safe deposit rentals and IRA custodial fees, if paid separately and not deducted from your account, are also allowed. Legal fees and expenses are deducible if they are related to producing or collecting taxable income. So be sure to keep track of these items as well.

Direct Capital has made a special arrangement for you to attend a FREE tax webinar about how to reduce your 2011 taxes. Register here: http://corporatetaxnetwork.com/directcapital

About the Author
Bert Seither is Director of Operations at Corporate Tax Network, a full-service CPA and Accounting firm that specializes in helping small to medium sized businesses position their taxes, financial statements and business plans for business loans. Corporate Tax Network has accountants, CPAs, and Enrolled Agents for all 50 states in the U.S.

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2 Comments

  1. Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a form 1098, I found a blank form here http://goo.gl/q7vk3T. This site PDFfiller also has some tutorials on how to fill it out and a few related tax forms that you might find useful.

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