–The 2018 tax code has changed some allowable deductions and Robert Borish, CPA, an Irvine tax expert, has summarized the allowable business deductions. “This summary is a guideline to help business owners know what kinds of records to keep,” said Borish.
The list presented here are guidelines to help business owners prepare for filing 2018 and 2019 tax returns. Borish encourages everyone to discuss any deductions, personal or business, with a tax professional.
- First and foremost, the new tax law allows self employed persons and pass-through entities (such as shareholders of S-Corporations and Partnerships) to deduct 20% of business income. There are complications to this rule but this can be a tremendous tax savings for many businesses.
- Vehicle expenses for business purposes can be deducted in two ways. The most common is to deduct 54.5 cents per mile. Some choose to keep itemized records of vehicle maintenance, tires, repairs, fuel, and to depreciate the cost of the vehicle. A tax accountant, such as Robert Borish, the Irvine taxes professional can provide the best advice for how to deduct vehicle expenses.
- Salaries, wages, and benefits paid to employees, including bonuses, commissions, and taxable fringe benefits are deductible.
- The cost of employee benefit programs, such as education assistance and dependent care assistance, as well as contributions to employees’ qualified retirement plan accounts, are deductible. For self-employed individuals, contributions to their own qualified retirement plan accounts are personal deductions claimed on Form 1040.
- Contract labor, such as payments to independent contractors, is deductible. Be sure to issue Form 1099-MISC to these individuals if they have been paid $600 or more.
- Supplies including office supplies, cleaning supplies, postage, and other items are deductible. The cost of equipment such as computers can be deducted or taken as a depreciation deduction over time.
- Depreciation is an allowance for the cost of buying property for your business, and can include deductions for equipment purchases up to a certain dollar limit. The depreciation category also includes some limitations and bonus depreciation allowances. Be sure to discuss depreciation, and any other business expense deduction, with a professional such as the Irvine taxes accountant.
- Rent on business property and home office is deductible. The cost of renting space an office, storefront, factory, or other type of facility such as storage, is fully deductible. A portion of expenses of a home office are deductible as a business expense if the home is used regularly and exclusively as the principal place of business, a place to meet or deal with clients or customers, or as a separate structure used in the business. The deduction includes both direct costs such as painting and repairs and a percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence.
- Utilities, including electricity, telephones and mobile phones are deductible, but there may be some limitations for a home office.
- Taxes, license and regulatory fees, and payroll taxes are deductible. There are some limitations on some deductions based on the business structure.
- The costs of most business insurance such as a business owner’s policy, malpractice coverage, flood insurance, liability coverage, and business continuation insurance are all fully deductible. In terms of health coverage, small business may qualify to claim a tax credit for up to 50-percent of the premiums paid for employees (a better tax break than a deduction). Also the cost of health coverage for self-employed individuals and certain S corporation shareholders is not a business deduction. Those premiums are deducted on the owner’s personal tax return.
- The cost of ordinary repairs and maintenance are deductible, while costs that add to the property’s value are usually recovered through depreciation. There are various safe harbor rules that allow for an immediate deduction as well.
- Commissions and fees are fully deductible and may require reporting on Form 1099-MISC. Commissions paid in connection with buying real estate are not deducted, but are added to the basis of the property and usually are recovered through depreciation.
- If any employee or the owner travel on business the costs of transportation and lodging are fully deductible.
- Ordinary advertising costs are fully deductible. Legal and accounting fees are fully deductible. Fees paid to lease or rent items used in your business are fully deductible.
- Meals are deductible business expenses up to 50-percent, although there are some meal costs that are fully deductible. As of 2018 entertainment costs are no longer deductible.
- Interest on business debt and business property mortgages is deductible. However, the allowable deductions are complicated. The deductible percentage of interest on debt depends on business gross receipts. Interest on loans to buy a business is treated differently and depends on whether the deduction is distinguished as owner’s investment interest or passive activity interest. Businesses that own real estate can fully deduct mortgage interest.
Deductible expenses help businesses of all sizes with the costs of running a company. The allowable deductions are relatively the same regardless of how the business is structured. Even though these deductions can be claimed by a sole proprietorship, C corporations, S corporations and limited liability companies (LLC) the IRS rules may apply different depending on the business structure. Be sure to discuss all business expense deductions with a qualified tax professional.
Robert Borish CPA, Inc.
6 Venture #120
Irvine, CA 92618
(949) 951-5002 x101
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