Common Deductions Overlooked by Businesses

(Newswire.net — December 17, 2014) Millbury, MA — As a small business owner, there are a number of tax deductions available to you. In fact, the deductions are one of several strong arguments for starting your own business—particularly a home-based one. Yet even with that as part of your mindset, many small business owners do not take advantage of all the deductions that are available to them.

“There are certainly enough challenges for small business owners so it certainly behooves entrepreneurs to be fully aware of the benefits,” said Paul Dion CPA, a Millbury, MA-based accountant who specializes in working with small business owners. “A store owner wouldn’t leave the day’s receipts unattended on the counter, right? Many small business owners are figuratively doing the same thing by not knowing what they can and cannot deduct.”

Adds Dion, “Many times business owners think they can’t deduct something because they have not seen it on some list of acceptable items to deduct. The IRS rules state that to be deductible the item should be an ‘ordinary and necessary’ business expense. If the item is an expense of conducting your business and not lavish it most likely is deductible and fits the ‘ordinary and necessary’ rule.” 

Dion notes home office deduction is one of the more overlooked. In fact, of the 23.4 million returns filed by sole proprietors for tax year 2011, only 7.6 million filers claimed a home office deduction, representing 32 percent of eligible filers. Says Dion, “Many people who operate businesses out of their homes are fearful of audits. This is nonsense. Home office deductions are legitimate deductions that the IRS is well aware of.”

Startup costs are another overlooked deduction. For many new businesses, they start calculating expenses once they open their doors for business. Research costs, mileage looking for locations or  Business owners are able to deduct up to $5,000 in startup expenses before opening your doors for business in your first year.

Inventory is another thing that small business owners may be able to deduct. Typically, a business with inventory uses the accrual method of accounting and subtracts inventory items from the cost of goods sold, which reduces the amount of income recognized on the sales. Under a special rule, however, certain small businesses can use the cash method of accounting and opt to treat inventory items as materials and supplies, which are currently deductible.

Some of the more common deductions overlooked by small businesses include: accounting fees; bank fees; interest payments; self-employment taxes; health insurance premiums; and carryover costs.

“Most small business owners have a decent idea about what is deductible and what is not. There are a number of things that are deductible that might not consider—like bank fees or interest payments. That’s why whether you’re just starting your business or been open for 20 years, it’s important to work with a tax professional to ensure you maximize your deductions,” said Dion.

For a free consultation and planning tips for the coming tax year, please call Paul Dion CPA at (508) 853-3292. For more information, you can also visit www.pauldioncpa.com.