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Deductions are different
for each business

Mom told me that the rule of thumb goes like this:

Is it something you would do anyway? If the answer is yes, you can't deduct it. If the answer is no, you can.

Artwork by Sondra P. Gaylord

The tax code says "no matter how bizarre..." as long as a deduction is usual, ordinary, appropriate, helpful, and necessary to that business, Congress permits the deduction. So...I'd have trouble supporting the purchase of tiger food or resin or peanuts. But a Circus wouldn't.

Define Deduction

The act of subtracting an expense from taxable income.

How can I get a Deduction?

By keeping a log. A book in which you write down facts such as mileage, odometer reading, destination, clients or customers' names. Put items and expense across the top of a dispursement sheet with the date and where the money was spent down left edge. Income and expenses are kept track of by the month. Then, every year, the categories (12 of them) are added up. And there are the deductions.

What is a Disbursement?

Here is a typical disbursement form for an auto mechanic broken down. The full explanation of this chart can be found at IRS form p583.pdf (You'll need Acrobat to read it).
Click on either side of the ledger for larger images:

Some things I can deduct

A vehicle (car, motorcycle, airplanes) in business or investment use.

A business that is selling a service or a product or both.

An Investment that is investing in something that will grow in appreciation, such as rental units.

Driven miles

Charity (Mom not sure what you mean here)

Medical miles (to Dr to hospital, even if you're visiting a parent or child)

Miles to get hearing aid batteries or pick up a seeing-eye dog.

Moving to work or seek work. Every mile is potentially deductible.

Lodging from door-to-door (direct moving, no vacation time allowed) is fully deductible.

Key words purchased

A program such as Quickbooks, Excel, Lotus, etc. to set up a spreadsheet calculator (preferably one with a tape) Calendar or notebook

log for car Receipt holder and sorter File folder or files to hold various receipts.

Toner, Paper, Glasses to see the computer, Pens, Pencils, Erasers

Business Start-Up Costs

Before you ever begin operating your business (like my laptop) are considered start-up costs. For me they will include advertising, travel, training and equipment. These costs are called capital expenses. These costs can be recovered in one of two ways:

	depreciation or
	amortization.

Define Amortization - Costs that you recover in equal amounts over a period of 60 months or more. If you do not chosose to amortize these start-up costs, you generally cannot revover them until you sell the business or otherwise go out of business (see 535).

Define Depreciation

If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed into service (like my laptop) you generally cannot deduct the entire cost as a business expense the year you aquired it. I'll have to spread the cost of my laptop over more than one tax year and deduct part of it each year. This method of deducting the cost of business property is called depreciation. Other office property you have to depreciate includes office furniture, buildings and machinery and equipment.

Section 179 Deductions

Never-the-less, if you are reading this before January 1, 2005 you can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. This kind of deduction is known as the "section 179 deduction". Check out Publication 946 to learn more about this.

TIP	If you get lazy or forget and don't depreciate what you are allowed to appreciate in the year you bought something, it is a pain the neck but you can reverse your error by filing a 1040X or by changing your current accounting method. Oye.

Is my home a business?

I asked my mom this question when I created a different site. Check out her full answer at: http://www.ismyhomesafe.com/deductingyourhome.htm.

Deductions are different for each business