TaxPoints Sep-Oct 2009

TAX DEDUCTIONS FOR BUSINESS

Deduct home-office expenses for part of a room. A Tax Court case says that if you use a portion of a room as your principal place of business, you can deduct the expenses allocated to that portion.

Example: A music teacher could deduct expenses for the part of his bedroom in which he gave lessons.

Claim an additional deduction for the cost of laundry, cleaning, lodging taxes, and telephone calls while on business trips. If you substantiate your business travel using the government’s per diem allowance, you can claim both the per diem allowance and a separate deduction for these items.

Caution: Be sure to keep receipts and other records to back up your deduction.

Machinery and equipment. It’s best to elect to expense equipment in the year it is placed in service rather than depreciating it over several years (usually five or seven years, depending on the type of equipment). For 2009, the dollar limit on expensing is $250,000.

Caution: Don’t make the election to expense if you’re not making a profit – the deduction will be worth nothing to you. Instead, depreciate the equipment over its recovery period. In the future, when you’re profitable, the depreciation deductions will be more valuable.