Here’s how to maximize your deductions, legally!

#1 – Understand the difference between a business expense and a capital expense
Business expenses are expenses incurred doing business. They’re usually tax deductible and include things like rent, travel and contractors and employees. Capital expenses are the cost of purchasing assets, for example a computer to run your business by or a car to deliver products or services. These don’t qualify as deductible business expenses, but you can deduct them by amortizing or depreciating them over time. The IRS offers guidelines for how to depreciate certain items.

#2 – Understand the difference between personal and business expense

Strictly speaking you cannot deduct personal expenses. However, some expenses are used both for business and personal. A cell phone, for example, or your home internet connection are often combined business and personal expenses and you can deduct the business expense. Determine the percentage of business expense and deduct that. The IRS does offer guidelines for some expenses.

#3 – You can deduct your home office

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation and are based on a percentage. This percentage is determined by calculating how much of your home expenses are used for business. The IRS offers articles and guidelines for home office deductions.

Know that you must use your home office regularly and exclusively. That means if your children use your office to do their homework, you’re unable to deduct it. You must also be able to show that your home office is your principal place of business.

#4 – Travel, Meals, Entertainment and Gifts

All business-related travel expenses can be deducted as well as all meals. If you take a client out for lunch, deduct it! If you send a client a bouquet of flowers or a gift basket, deduct it! If you take your family on a vacation and conduct business while you’re there, you can deduct a percentage of the trip.

#5 – Employees and Contractors

You can deduct the pay you give your employees and contractors.

#6 – Interest

This is a good one if you’ve funded your business with credit or a loan. You can deduct the interest charge to you. This is why it’s important to keep business and personal finances separate.

#7 – Retirement Plans

You can deduct the money you invest in your retirement account, depending on the amount you invest and how you invest it.

#8 – Insurance

You can deduct the cost of insurance for your business and this includes the cost of health insurance.

#9 – Business-Related Education

These expenses can be deducted. For example, seminars, classes, educational materials and conventions.

#10 – Subscriptions to industry publications and organizations

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