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Filing a small business tax return can be a bit challenging if you have never done it before. Taxes are something that many people do not understand because there are very confusing rules. Here are a few frequently asked questions that many small business owners ask about their tax return.
What Can I Write Off?
One of the most common questions that small business owners ask is what they can write off for their business. The IRS says that you can write off any "ordinary and necessary" business expenses from your taxable income. You can write off equipment, salaries, rent, business travel, supplies and other common expenses that fall along those lines. If your business experiences a financial loss, you should also write off the loss on your personal tax return. This will lower your personal taxes as well.
Can I Write Off Gifts to Clients?
Many small businesses are quite generous to their clients and use gifts as a way to build relationships. There is nothing wrong with this strategy and it could be beneficial. However, you can not deduct the entire amount of the gifts. According to the IRS, you can deduct the first $25 of a gift to each separate person or company. Therefore, if you give someone a gift for $1000, you can only deduct $25 of that gift on your taxes. Many business owners report gifts of $5000 on their tax return. This usually sends up a red flag because that would mean that they gave gifts to 200 different people.
Do I Need to Keep Small Receipts?
There is a commonly known rule that the IRS does not necessarily require you to keep actual receipts for expenses that are less than $75. While this is technically true, it would usually be to your advantage to keep them anyway. Even though you do not have to keep an official receipt, you do have to know the exact amount that you are deducting, the reason for the deduction, and the circumstances.
For example, if you are going to deduct a dinner with a client for $60, you would need to know that the $60 was a charge for dinner at a particular restaurant with a client. Otherwise, they will not allow you to count the deduction. A receipt will have all of that information on it for you. Hanging onto a receipt is going to be much easier than coming up with a log book to keep track of everything.
How Do I Deduct Charitable Contributions?
In most cases, charitable deductions will go through the company and are filed on the share holders individual tax returns. Unless your business is a "C" corporation, this will apply to you. In order to count a charitable contribution, it has to be a contribution to a qualified charitable organization. If the donation was over $250, you will need to include some kind of a letter or receipt from the charitable organization to prove it.
