Product Description

From start-up to success, you need to Deduct It!

Completely updated for 2008

Make more money for your small business by paying the IRS less. Let Deduct It! show you how to maximize the business deductions you're entitled to -- quickly, easily and legally.

This comprehensive, yet easy to read book is organized into practical categories featuring common deductions, including:

Product Details

• Amazon Sales Rank: #13376 in Books
• Published on: 2007-12-12
• Original language: English
• Number of items: 1
• Binding: Paperback
• 496 pages

Review
"Delves deeply into the complex thicket of available deductions, with real-life examples on deducting everything from start-up expenses to car and travel expenses and the costs of benefits." -- Accounting Today

"For more information on how to handle inventory and write off the cost of goods, see Deduct It! Lower Your Small Business Taxes." -- San Francisco Chronicle

"Outlines the many deductions available to small businesses -- in plain English." -- National Federation of Independent Business

About the Author
Stephen Fishman is the author of many Nolo books, most recently Tax Deductions for Professionals. Other titles include Deduct It! Lower Your Small Business Taxes, Every Landlord's Tax Deduction Guide and Home Business Tax Deductions: Keep What You Earn plus many other legal and business books. He received his law degree from the University of Southern California in 1979. After time in government and private practice, he became a full-time legal writer in 1983.

Excerpt. © Reprinted by permission. All rights reserved.
Chapter 1

Tax Deduction Basics

Introduction

The tax code is full of deductions for businesses -- from automobile expenses to wages for employees. before you can start taking advantage of these deductions, however, you need a basic understanding of how businesses pay taxes and how tax deductions work. This chapter gives you all the information you need to get started. It covers:

how tax deductions work
how businesses are taxed
how to calculate the value of a tax deduction, and
what businesses can deduct.

A. How Tax Deductions Work

A tax deduction (also called a tax write-off) is an amount of money you are entitled to subtract from your gross income (all the money you make) to determine your taxable income (the amount on which you must pay tax). The more deductions you have, the lower your taxable income will be and the less tax you will have to pay.

Types of Tax Deductions

There are three basic types of tax deductions: personal deductions, investment deductions, and business deductions. This book covers only business deductions -- the large array of write-offs available to business owners.

Personal Deductions

For the most part, your personal, living, and family expenses are not tax deductible. For example, you can't deduct the food that you buy for yourself and your family. There are, however, special categories of personal expenses that may be deducted, subject to strict limitations. These include items such as home mortgage interest, state and local taxes, charitable contributions, medical expenses above a threshold amount, interest on education loans, and alimony. This book does not cover these personal deductions.

Investment Deductions

Many people try to make money by investing money. For example, they might invest in real estate or play the stock market. These people incur all kinds of expenses, such as fees paid to money managers or financial planners, legal and accounting fees, and interest on money borrowed to buy investment property. These and other investment expenses (also called expenses for the production of income) are tax deductible, subject to certain limitations. Investment deductions are not covered in this book.

Business Deductions

People in business usually must spend money on their business -- for office space, supplies, and equipment. Most business expenses are deductible, sooner or later, one way or another. And that's what this book is about: the many deductions available only to people who are in business (sole proprietors, independent contractors, and small business owners).

You Only Pay Taxes on Your Business Profits The federal income tax law recognizes that you must spend money to make money. Virtually every business, however small, incurs some expenses. Even someone with a low overhead business (such as a freelance writer) must buy paper, computer equipment, and office supplies. Some businesses incur substantial expenses, even exceeding their income.

You are not legally required to pay tax on every dollar your business takes in (your "gross business income"). Instead, you owe tax only on the amount left over after your business's deductible expenses are subtracted from your gross income (this remaining amount is called your "net profit"). Although some tax deduction calculations can get a bit complicated, the basic math is simple: The more deductions you take, the lower your net profit will be, and the less tax you will have to pay.

Example: Karen, a sole proprietor, earned $50,000 this year from her consulting business. Fortunately, she doesn't have to pay income tax on the entire $50,000 -- her gross income. Instead, she can deduct from her gross income various business expenses, including a $5,000 home office deduction (see Chapter 7) and a $5,000 deduction for equipment expenses (see Chapter 5). She deducts these expenses from her $50,000 gross income to arrive at her net profit: $40,000. She pays income tax only on this net profit amount. You Must Have a Legal Basis for Your Deductions All tax deductions are a matter of legislative grace, which means that you can take a deduction only if it is specifically allowed by one or more provisions of the tax law. You usually do not have to indicate on your tax return which tax law provision gives you the right to take a particular deduction. If you are audited by the IRS, however, you'll have to provide a legal basis for every deduction you take. If the IRS concludes that your deduction wasn't justified, it will deny the deduction and charge you back taxes and, in some cases, penalties.

You Must Be in Business to Claim Business Deductions Only businesses can claim business tax deductions. This probably seems like a simple concept, but it can get tricky. Even though you might believe you are running a business, the IRS may beg to differ. If your small-scale business doesn't turn a profit for several years in a row, the IRS might decide that you are engaged in a hobby rather than a business. This may not sound like a big deal, but it could have disastrous tax consequences: people engaged in hobbies are entitled to very limited tax deductions, while businesses can deduct all kinds of expenses. Fortunately, this unhappy outcome can be avoided by careful taxpayers. (See Chapter 2 for a detailed discussion on how to beat the hobby loss rule.)

Customer Reviews

as a beginer, it was a smooth informative read
i just started (well just INCORPORATED) my catering business. i found this book to be written in an accessible and unintimidating style. Fishman goes to great lengths to give examples, cite external sources for additional information, and generally uncomplicates the IRS jargon. now only if i had read this 6 months ago, i would really be ahead of the game!

Highly readable and informative
This book is a must small business owners because it can improve their bottom line. Although it provides fairly good overview of tax deudctions, it should not be used as a comprehensive reference for tax professionals.

The book is a relatively light read in a highly readable format. Each tax deduction has a good overview and a case example to boot. It isn't, however, an answer to complex tax questions which the book willingly acknowledges should be taken to a tax professional. For most business owners, this book should be sufficient for most of the tax deduction questions they may have. This book certainly answered all of mine.

The book provides valuable information on the probability of an IRS audit (don't form sole proprietorship if you want to avoid an audit) and how one can minimize one's chances of an audit.

So simple to understand, excellent examples
I read this book after forming a C-Corp in California (using the Nolo guide). Although I am familiar with many biz deductions, this book walks you through many examples of deductions you can take if you plan ahead. I really like the "Day in the Life of..." examples of how you can maximize legal deductions pertaining to mileage. There's an excellent section on home office deductions. My husband, a self-admitted dummy when it comes to expense reports, taxes, etc., picked up the book after I was done, and even he understands the concepts. Already he has found deductions for his sole proprietorship and non-reimbursed employee biz expenses. Great value and so easy to understand. Highly recommend.