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Tax Deduction Considerations for Small Businesses

It’s almost end of the year. Now is the time to make your last-ditch effort to maximize your tax deductions for next year. Here are some things you can do:

- If you are self-employed with no employees other than your spouse, you can open a Self Employed 401K. The main benefit of the self employment 401K is that generally, you can deduct the entire amount of your plan contributions from your taxable income each year. You can read more of how you can take advantage of the tax benefits of this retirement savings tool from the article Self-Employed 401K: A Retirement and Tax Savings Tool for Small Businesses

- Head to the nearest office supplies store and stock up on office supplies. You can then deduct those supplies from your 2006 income. Just make sure you keep all your receipts

- Time to spruce up your home office. Expenses that affect your home office such as repairs and painting are considered by IRS as “direct expenses.” Painting the outside of your home is considered an indirect expense and you can deduct a pro-rata share of the cost based on the space allocation of your home office. Note though that home office deductions cannot exceed the business’ net income

- Purchase equipment for your business. First year expensing (Section 179 deduction) allows a deduction up to $108,000 in 2006 and $2,960 for a car (certain SUVs the expensing limit is $25,000). So if you are thinking of buying your servers and computers, now’s the time to save on your taxes for 2006.