Taking a Tax Break

If you’ve written a business plan, written your own checks, and you can write out a receipt, chances are, you can write-off some of your business expenses. Even if you can write your name, you can give yourself a tax break.

By Kamilah Duggins

One of the biggest mistakes young businesspeople make, especially those who run their businesses from home, is not getting the proper tax deduction education, says Ted Reis, a spokesman for the Taxpayer Advocate Service. Don’t step lightly into the world of write- offs and tax credits--it’s one of the more beautiful things about living and working in America. But in order to work the system, you have to know how the system works. And that means reading between the lines and talking to the right people.

Where the Write-Offs Roam

Author and tax attorney Jeff Schnepper wrote a book called How to Pay Zero Taxes, and he says, bottom line: “if you are self-employed, there’s almost nothing you can’t write-off.” Wow! A whole new world just opened up, right? It’s true, though. Pretty soon your W-2 forms will be rolling in, and this information on how to save money is right on time. Like Jeff says, everything you purchase for the use and promotion of business is something the IRS could be contributing to.

If you don’t own the home that you’re working out of, chances are you’re not going to be writing off any electricity or gas bills; leave that to the parents. But if you purchase equipment for the operation of your office, such as a fax machine, a computer, or a chair for clients to sit on, it’s a write-off. Or if you travel during the day to conduct your business, that can also be deducted.

What a write-off does is lower your income, which will consequently lower the amount of taxes you pay. Earning a tax credit is a little more difficult to swing, but Jeff says, “It’s always better to have a tax credit than a deduction.” A credit is something that both reduces your income and makes the government cut you a check. Either way, you save money.

Even items rumored to be non-deductible, such as food and clothing, can be picked up by the government. For instance, if you make T-shirts that advertise your business and give them to your friends to wear, those are no longer mere shirts—they are advertising. Write it off. If you throw a party to promote your business and serve food and drink—guess what? That chip and dip just became a deduction.

Teach Yourself Taxation

Still not clear on how this whole deduction thing works? Don’t worry; you’re not the first person to board the “I cannot understand taxes” bus. Jeff agrees that America has some of the most confusing tax codes in the world, and he teaches it to graduate students.

The last 37 of 39 years have seen a change in tax law, and it’s not like the government stops traffic to make some big announcement about it. So to stay up on what’s what, Jeff says you should read two things. One is the IRS’s Publication 334. It’s a business publication that you can order online or by phone. His second modest suggestion is his own book, which talks about all deductions that are allowed.

Make a commitment to teach yourself about taxes, but if your business is really booming, perhaps sitting down with a business attorney or a CPA (certified public accountant) would be worth your while, Jeff suggests.

And even if you are well read, there are some things you won’t know until it happens to you. So, start by keeping all of your receipts and your checks. “Remember,” Jeff warns, “unless you can prove a deduction, it didn’t happen.”

“Get receipts for everything—if you drop clothes off at good will, that’s a charitable deduction,” explains Jeff. “People need to start picturing dead presidents instead of paper, it will make them pay much more attention.”