Introduction
Your Tax Deduction Companion
Few of us ever test our powers of deduction, except when filling out an income tax form.—Laurence J. Peter
If you are truly serious about preparing your child for the future, don’t teach him to subtract—teach him to deduct.—Fran Lebowitz
Anyone who runs a business knows that you have to spend money to make money. This book will show you how to get some of that money back, in the form of tax deductions.
A tax deduction is money on which you don’t have to pay income taxes. The government has decided that business owners don’t have to pay tax on income they spend for certain business purposes. So, the trick to paying lower taxes—and keeping more of your hard-earned dollars—is to take advantage of every tax deduction available to you.
That’s where this book comes in. It shows you how you can deduct all or most of your business expenses from your federal taxes. This book is not a tax preparation guide—it does not show you how to fill out your tax forms. By the time you do your taxes, it may be too late to take deductions you could have taken if you had planned the prior year’s business spending wisely and kept proper records. Instead, this book gives you all the information you need to maximize your deductible expenses—and avoid common deduction mistakes. You can (and should) use this book all year long, to make April 15 as painless as possible.
This book is for anyone who is in business, including:
- self-employed businesspeople
- sole proprietors (who own a one-person business)
- professionals who own their own practice, such as doctors, dentists, and (even) lawyers
- those engaged in a part-time or sideline business
- consultants
- freelancers
- independent contractors
- owner-employees of small corporations
- partners in business partnerships, and
- members of limited liability companies.
This book applies only to those who own their own businesses. If you are an employee of a business you do not own, this book does not cover your situation. This book also does not apply to government employees.
Business owners live in a different tax universe from wage earners—those who work in other people’s businesses or for the government. Wage earners have their income taxes withheld from their paychecks and can take relatively few deductions. The vast majority of small business owners—about 80%—are sole proprietors who have no taxes withheld from their earnings and can take advantage of a huge array of tax deductions available only to business owners.
In order to take advantage of the many tax deductions available to business owners, you’ll have to figure out which deductions you are entitled to take and keep proper records documenting your expenses. The IRS will never complain if you don’t take all the deductions you are entitled to—and it certainly doesn’t make a point of advertising ways to lower your taxes. In fact, the majority of small businesses miss out on many deductions every year simply because they aren’t aware of them—or because they neglect to keep the records necessary to back them up.
Even if you work with an accountant or another tax professional, you need to learn about business tax deductions. No tax professional will ever know as much about your business as you do. And, you can’t expect a hired professional to search high and low for every deduction you might be able to take, especially during the busy tax preparation season. The information in this book will help you provide your tax professional with better records, ask better questions, obtain better advice—and, just as important, evaluate the advice you get from tax professionals, websites, and other sources.
If you do your taxes yourself (as more and more small business owners are doing, especially with the help of tax preparation software), your need for knowledge is even greater. Not even the most sophisticated tax preparation program can decide which tax deductions you should take or tell you whether you’ve overlooked a valuable deduction. This book can be your guide—providing you with practical advice and information you need to rest assured that you are not missing out on valuable deductions.
