89 Possible Tax Deductions for Business Owners

Your accountant is good if he/she constantly teaches you to always think about various ways and means to save on taxes. And saving on taxes is either minimizing your taxable income or maximizing your deductions. To maximize your deductions, you should consider any and all personal expenses that may have a business purpose. In general, the Tax Code allows, as deduction from gross income, all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession.

Thus, you may be able to convert some personal expenses to business expenses, as long as you have the proper business purpose for that expense. Note however that no business expense can be legitimately deducted without being substantiated with proper receipts and other adequate records and reconciled with the amount of the expense being deducted, and the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer.

If you can document your expense, refer to this list of 89 possible deductions for business owners.

Association and membership dues

Advertising costs

Amortization

Auto expenses

Bad debts

Banking fees

Board meetings

Business travel

Capital Losses

Charitable contributions

Cleaning/janitorial services

Collection Expenses

Commissions to outside parties

Communication Expenses

Computers and technical supplies

Consulting fees

Continuing education

Conventions and trade shows

Costs of goods sold

Credit card annual fees

Dental Expense (with plan)

Depreciation

Discounts to customers

Education and training for employees

Entertainment for customers and clients

Equipment

Equipment repairs

Exhibits for publicity

Fire Insurance

Fire Loss

Franchise fees

Fringe Benefits paid to employees

Freight or shipping costs

Furniture or fixtures

Fire Insurance

Group insurance expense

Health insurance expense

Home office

Interest Expense

Internet hosting and services

Investment advice and fees

Laundry Allowance

Legal fees

License fees

Litigation expense

Losses due to theft, pilferage or embezzlement

Management fees

Materials

Maintenance

Meal allowance

Medical expenses (with plan)

Mortgage interest on business property

Moving/Freight expenses

Municipal/City Licenses

Newspapers and magazines

Office supplies and expenses

Pag-ibig contributions

Parking and toll fees

Pension trusts or plans

Per diems

Philhealth contributions

Professional Fees

Promotion and advertising fees

Pre-incorporation expense

Pre-development

Publicity

Real estate taxes

Real estate related expenses

Rebates on sales

Rent

Repairs

Representaton Expense

Research and development

Retirement plans

Rice Allowance

Royalties

Salaries and wages

Software and online services

SSS Contributions

Stamps and Postage fees

Storage rental

Subcontractors

Telephone

Transportation allowance

Training and/or teambuilding cost

Utilities

Value added taxes

Website design

Workers' compensation insurance

10 Deadly Mistakes you made this last tax filing season

If you are a businessman or entrepreneur, you might have made the following crucial mistakes when you filed your income tax return last 15 April 2011:

1)      You failed to check your math in arriving at the taxes due.

2)      You failed to attach a CPA Certificate which is required if your gross quarterly sales, earnings, receipts or output exceed P 150,000.00.

3)      You failed to consider allowable deduction for taxes paid or incurred in connection with your profession, trade or business. Examples of these taxes are real property taxes, value added taxes, municipal/city taxes and licenses as expense. These taxes are deductible expenses and taxes not allowed as deductions are income taxes, estate and donor’s taxes.

4)      You failed to deduct interest as expense and if you did you failed to follow the limitations set forth by the Tax Code on deductibility of interest.

In general, the amount of interest paid or incurred on indebtedness in connection with the taxpayer's profession, trade or business are allowed as deduction from gross income. For example, the interest paid on mortgage for purchase of office building is deductible as expense. You may even have the option to treat the same as a capital expenditure whichever way is convenient tax wise.

Note though the limitations on deductibility of interest expense. Such allowable interest expense shall be reduced by an amount equal to 38% of the interest income subjected to final tax. Therefore, interests incurred are not deductible in full if you have earned interest income previously subjected to final tax.

Further, interests paid are not allowed as deductions if payment has been made or is to be made: i) between family members, ii) between a stockholder and corporation, where such stockholder owns 51% of the corporation; and iii) between fiduciary and trust.

Another limitation is the non-deductibility of interest paid in advance through discount or otherwise if one is at the same time reporting income on a cash basis. Such interest can only be deducted in the year the indebtedness is paid or if indebtedness is payable in periodic amortizations, the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year.  In other words, advance interest paid cannot be deducted until the principal is paid if one is reporting income on a cash basis.

5)      You failed to write off bad debts or debts no longer collectible. So long as bad debts are connected with one’s profession, trade or business and not made between family members and those mentioned under Section 36 (B) of the Tax Code, the same can be deducted as expense.

6)      You failed to consider your travel expense provided that such travel was in pursuit of trade, business or profession.

7)      You failed to deduct entertainment, amusement and recreation expenses that are directly connected to the development, management and operation of your trade, business or profession, or that are directly related to or in furtherance of the conduct of your trade, business or exercise of profession.

8)      You failed to deduct losses from robbery, theft, pilferage, embezzlement, fire, storm or other losses provided that such losses are not compensated for by any insurance.

9)      You failed to deduct contributions made to charity which can either be deductible in full or with limitations. Contributions to the government, donations to Certain Foreign Institutions or International Organizations and to Accredited Nongovernment Organizations are deductible in full. Other contributions are only allowed as deductions in an amount not exceeding (10%) in the case of an individual, and five percent (5%) in the case of a corporation, of your taxable income derived from trade, business or profession as computed without the benefit of amount pertaining to charitable contributions,

10)  You failed to consider other deductions allowed by law such as depreciation, loss from exchange of property, benefits given to employees such as pension trusts, research and development, capital losses, fringe benefits, etc.

However, don’t fret if you made the foregoing mistakes. You can always amend your income tax return. There is no prescription period for amending the return, except when one has been issued a Letter of Authority (LA).  An LA is the authority given to revenue agents to investigate your books of accounts and other tax documents to determine the correctness of taxes paid for a given taxable year. Once an LA has been issued, you can no longer amend your return. So rectify your tax mistakes while you still can.