Business Deductions

[spikedo]

As a sole proprietor, business was good last year. SO good that my earnings far outweigh my expenses. Not wanting to pay the tax man more than I have to, I'm trying to learn what I can do in the future to reduce my taxable amount. But I'm not accounting genius. I imagine that a lot of NPers are in this situation. What have you done/are doing to reduce your taxes?

 

[deu12000]

Hmmm...Some items depreciate in value an example is a computer, computer accessories, cars, a house or office building, other things of value. Items that depreciate in value can be a deduction every year, until the item finishes depreciating (once it's considered to have no value).

Another thing you can do is make donations. Let's say you have a car that you don't need anymore (usually an old junker), you can let a charity have it, there's another deduction. Any old clothes you have, you can turn them in for a deduction. Have a kid, if you have a dependent or several that's another deduction. Donate to churches, Salvation Army or any other non-profit organization.

Mileage, you can make deductions for mileage, repairs, tolls, and other car expenses.

Business trips. Take your family on vacation, just make sure you talk to someone about your business while you're on vacation and you can deduct a big chunk of that vacation.

Just remember where ever you go as long as you talk to someone about your business and keep everything documented you can make deductions all over the place.

 

[larky_starz]

It's not very often that houses/building depreciate in value? Most of them go up!

I think it's also wrong to donate second hand clothes to a charity and use it as a tax write-off. Cash donations are fine.

There are many honest tax payers who would be appalled by some of those suggestions.

I say, well done on making more income than what you've spent on expenses. That is called making a profit, which in turn becomes income, which means tax is payable on it. Thems the rules.

 

[deu12000]

A house does depreciate in value, but the land doesn't. I see you're from Australia so the tax system and valuation of things might be a little different there, this varies by country.

A little known fact is that most big commercial properties in the US are never sold. They are exchanged. Person A has a strip mall worth $3,000,000 and person B has a strip mall worth $3,000,000 after 39 years the building value drops to $0. For those 39 years the property owners get a deduction because there property depreciated in value, once those 39 years are up they know longer have that deduction and start paying higher taxes on the property income because they aren't taking a loss anymore on the building. What ends up happening is person A and B switch equal valued properties and the 39 year process starts again. They don't have to pay taxes as if they were buying it because it was an exchange and the 39 year depreciation cycle starts all over again. If I didn't explain this correctly here is a page that also explains property depreciation this also is the same for houses but the depreciation cycle is shorter http://www.invest-2win.com/depreciation.html

Just remember I'm not saying the property resell value goes down at all, it could actually increase and almost always does especially in that long period of time. It's just the way the tax system works here, check your local laws you never know, you might start saving more on taxes. There are a lot of little known secrets for getting legal deductions.

You think it's wrong to donate the clothes. I don't see anything wrong with it. You are doing a good deed and the government is just giving you a little bit back from what you gave away. It's not like they even give you 50% of the value you originally paid. You also aren't going to donate rags to charity, even the charities will tell you they want clothes in good condition and clean. Cash donations are also deductible.

I have never meet a tax payer that was apalled by any of my legal suggestions. I understand it's always good to donate and give stuff away with no intentions of gaining financially, but you are never really gaining financially, the IRS only gives you back a certain percentage from what you donate. It could also be a cultural difference. I know a lot of people that give 10% of their salary to the church/temple and they get a receipt from their place of worship once a year and they also deduct that come tax time.

Anyway hopefully this post helped someone out.