Commonly Missed Deductions by Small Business Owners
Some of the most commonly missed deductions by business owners include asset related expenses, travel, meals and entertainment expenses. Below is a general summary of these types of deductions, but as with all tax issues you should seek the advice of a qualified Certified Public Accountant to address your particular situation.
Certain new and used assets qualify for an expense deduction under Code Section 179 if proper elections are made. This could allow up to $250,000 of qualified assets to be deducted, but this amount can be limited by both income and investment limitations. In addition, there is a Special (Bonus) Depreciation deduction equal to 50% of the depreciable basis of qualified new property placed in service in 2009.
In general, travel expenses are deductible for tax purposes if they are ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business.
The amount you can deduct for business related meals and entertainment expenses is generally limited to 50% of the expense.
Exception: Meals can be 100% deductible if paid for employees at their work and are for the convenience of the employer. In addition, a company holiday party or social event may qualify for a 100% deduction or if a client reimburses the meals, they will be considered 100% deductible (Note: the client will be subject to the 50% limitation). Ensure the records for 100% deductible expenses are kept separate from the 50% deductible meal expenses.
You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. You can deduct entertainment expenses only if they are both ordinary and necessary, and meet either the directly-related test or the associated test.
To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that:
Even if your expenses do not meet the directly-related test, they may meet the associated test. To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: