How to Find Hundreds of Deductions
Are you small business owner who’s frustrated about
You face a mind-boggling array of choices when it
comes to figuring out what is and is not deductible on your
income tax return each year. And just when you think you’ve
got this tax system figured out, new laws are passed and it
feels like you’ve got to start all over.
Perhaps the best place to begin this journey is the income
tax return itself. Depending on what type of entity you
own, here are the main income tax forms: Schedule C (sole
proprietorship), Form 1065 (partnership), Form 1120 (C
corporation), and Form 1120S (S Corporation). Note: If you
own a limited liability company (LLC), you’ll use one of
those four forms, depending on how you choose to be treated
for tax purposes. These tax forms are an excellent way to
begin the process of answering the question: What’s
Notice that on each of these forms, there may only be 15 or
20 specific expense categories, or line items, to help you
know what to deduct. For example, on Schedule C, starting
with line 8, you have advertising, car and truck expenses,
commissions and fees, depreciation and section 179 expense,
and so forth.
This list continues to line 26, wages. And that’s it. Only
19 expense categories. Are those the only 19 deductions you
can take for your sole proprietorship?
Or how about Form 1120S. The expense section starts with
line 7, compensation of officers, and continues on to line
18, employee benefit programs. And again, that’s it. Only
12 expense categories. Obviously there must be more than 12
deductions you can write off for your S corporation.
So if you’re thinking, “These tax forms give me only a
handful of deductions to identify, but fall short of
providing a comprehensive list”, you are correct. So what
do you do now?
All the above-listed business income tax returns include a
line called “Other expenses” or “Other deductions”. On
Schedule C, it’s line 27. On Form 1120S, it’s line 19. On
Form 1120, it’s line 26. And on Form 1065, it’s line 20.
This is where you get to report all the other deductions
that are not specifically mentioned on the previous lines.
You simply attach a separate statement that itemizes the
remaining business deductions. Then add up all those other
deductions and transfer the total from the attached list to
the main part of the tax return.
This “other deductions” list can be as long as you need it
to be. There are dozens (even hundreds) of legitimate
deductions for your business that the IRS didn’t think
necessary to include on the main page of the tax return.
And now it’s up to you to find out what they are.
There are plenty of good resources to help you compile that
list of bona fide deductions. The IRS website has many free
publications that explain deductions, depending on your
entity: Publication 334 (sole proprietorship), Publication
542 (C corporation), Publication 541 (partnership). For S
corporations, there is no separate publication, so start
with the Form 1120S instructions.
Admittedly, IRS publications are not known for readability
or comprehensiveness. So if you are serious about finding
out what you can deduct, do yourself a favor and spend $15
or $20 on a few well-written books about small business tax
deductions. Here are three of my favorites: “422 Tax
Deductions for Businesses & Self-Employed Individuals” by
Bernard B. Kamoroff, “Small Business Taxes Made Easy:
Increase Your Deductions, Reduce What You Owe, and Boost
Your Profits” by Eva Rosenberg, and “Lower Your Taxes Big
Time” by Sandy Botkin.
Looking for more small business tax tips? For a free copy
of the 25-page Special Report “How To Instantly Double Your
Deductions”, visit+http://www.yousaveontaxes.com+. Wayne M.
Davies is author of 3 ebooks on tax reduction strategies
for small business owners and the self-employed.