Small Business Tax Basics

Taxes are one of the most important issues facing small businesses. And like a company's profits, its annual tax bill will, in part, reflect the owner's skills and knowledge. Business owners need to be sure that they are meeting all their responsibilities to the tax authorities — and also seizing every legitimate opportunity to reduce their taxes.

Writing It Off: Deductions
Businesses can deduct all "ordinary and necessary" business expenses from their revenues to reduce their taxable income. Some deductions are obvious — expenditures in such areas as business travel, equipment, salaries, or rent. But the rules governing write-offs aren't always simple. Don't overlook these potential deductions:

• Trips that combine business and pleasure. If a business trip is primarily devoted to business, deduct the travel costs, as well as other business-related expenses.
• Purchases financed by business loans or credit cards. These costs can be deducted this year even if they won't be paid off until later. Deduct the interest on the loans themselves, as well.
• Startup expenditures. Only a portion of expenses related to starting up a business can be deducted — $5,000 of general startup costs, and $5,000 of organizational costs. Additional expenses must be amortized over 180 months once the company is up and running.