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Speaker clarifies tax deductions

Posted: August 21, 2012 2:00 a.m.
Updated: August 21, 2012 2:00 a.m.

Automobile and home office deductions are two of the most common areas that small businesses bring up with their tax preparers, said Tina Rider, a certified registered tax preparer with Top of the Line Tax Service.

The tax preparation agency hosted Friday’s Lunch & Learn at the SCV Chamber to discuss these two areas plus others with 20 local business owners.

“There’s a lot of confusion about mileage,” Rider told the group at the beginning of the Lunch & Learn. The two ways a business can deduct mileage is through actual expenses (deducting for all business-related gas, insurance, parking fees, etc.) or through standard mileage, where you deduct money for each business mile driven. The way a business decides to deduct can depend on which way benefits it the most, Rider said.

What many businesses get confused about is commuting versus travel expenses, Rider said. If you are driving to various business-related sites and errands in one day, the first stop in your day is not deductible, because it counts as the commute portion.

Alex Dunkel, enrolled agent for Top of the Line, recommended that home business owners try to conduct as many business errands in one day to ensure as much travel as possible can be deducted.

When it comes to deducting home offices, the presenters said a mistake business owners sometimes make is trying to count a room that is sometimes used for personal use as a home office, just because work is conducted there.

“Be really selective when doing your home office stuff because the IRS is more curious about that,” Rider said. “You must use the part of the house exclusively and regularly for business.”

Dunkel said sometimes the deduction is minimal for a home office, and it may not be worth the potential for an error. “Usually when we explain how it works, they say ‘Nah, it’s not worth it,’” she said.

Beyond automobile and home office deductions, the Lunch & Learn went over record keeping tips. Some business owners don’t realize that the IRS can — and does — request records a couple of years after, and they should all be kept at least seven years.

Many clients also think credit card statements are sufficient, Rider said, but the IRS will want to see the itemized credit card receipts in the case of an audit.



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