It’s time to prepare your tax returns for the prior year. Your first step should be to consult with a qualified tax professional in your area to ensure you are filing all of your paperwork entirely and accurately. In the meantime, take some time to review your books, collect your receipts, and ensure you are optimizing your towing company expenses for your tax returns. Here are a few of the most common expenses small business owners overlook when filing income tax returns.
Don’t forget about these towing company expenses when you prepare your tax documents:
Don’t forget about these towing company expenses when you prepare your tax documents:Home office expenses
It’s not uncommon for small business owners like you to manage the company’s operations from home. If you work from home, you may be eligible to claim home office expenses on your tax return. These expenses can include a portion of your mortgage or rent, utilities, and internet expenses.
To qualify for the home office deduction, you must meet specific criteria. The space you use as your home office must be exclusively used for business purposes and must be your principal place of business. Additionally, the area must be regularly and solely used for administrative or management activities or meetings with clients or customers.
Business use of personal vehicle
If you use your personal vehicle for business purposes, you may be able to claim a deduction for related expenses on your tax return. These expenses can include gas, maintenance, repairs, and insurance. It’s important to keep accurate records of your business mileage and related expenses, as the IRS requires documentation to support your deductions. Today you can find many smartphone applications to help you track work mileage quickly and efficiently.
There are two methods for calculating the business use of personal vehicle deduction: the standard mileage rate method and the actual expense method. The standard mileage rate method allows you to claim a set rate per mile driven for business purposes. The actual expense method requires you to calculate the actual expenses related to your business use of the vehicle, such as gas, maintenance, repairs, and insurance. You can then deduct a percentage of those expenses based on the percentage of business use of the vehicle. Your tax professional can help you decide the best method based on how you use the vehicle.
Travel expenses
If you travel for business purposes, you may be able to claim deductions for related expenses on your tax return. These expenses can include transportation, lodging, meals, and entertainment. It’s important to keep accurate records and receipts for these expenses, as the IRS requires documentation to support your deductions.
To qualify for travel expense deductions, your travel must be primarily for business purposes. If your trip is primarily for personal reasons, you cannot claim deductions for related expenses. Additionally, there are limitations on certain types of travel expenses, such as meals and entertainment.
The IRS allows you to use either the actual expense method or the per diem method to calculate your travel expenses. The actual expense method requires you to calculate the actual expenses related to your travel, while the per diem method allows you to use a set daily rate to calculate your expenses for lodging, meals, and incidental expenses. You should always review travel expenses with your tax professional to ensure they are eligible for deduction.
Business-related meals and entertainment
Small business owners may be able to claim deductions for meals and entertainment directly related to their business activities. However, these deductions are subject to certain limitations and documentation requirements.
To qualify for the business-related meals and entertainment deduction, the expense must be directly related to or associated with the active conduct of your business. Additionally, the expense must be ordinary and necessary and cannot be lavish or extravagant. Keep all your receipts and note the reason for the business-related expense. Your tax professional will help you determine how much of these expenses are deductible on your tax returns.
Startup costs
Small business owners who have recently started their businesses may be able to claim deductions for certain startup costs on their tax returns. These costs can include legal and accounting fees, marketing expenses, and research and development costs.
To qualify for the startup cost deduction, the expenses must be incurred before the business begins operations. Additionally, the expenses must be related to creating an active trade or business, and they cannot be related to the purchase of a business or the acquisition of assets for an existing business.
Depreciation
Small business owners can claim deductions for the depreciation of certain business assets on their tax returns. Depreciation is the process of deducting the cost of an asset over its useful life. Assets that can be depreciated include equipment, vehicles, and buildings. For towing business owners, your fleet and much of your equipment will likely be expensed according to a depreciation schedule. It’s essential to calculate correctly and document depreciation expenses, as they can significantly impact your tax liability.
Depreciation schedules can be somewhat complicated depending on the type of item and its purchase price. However, once your tax professional understands these aspects of your business, they can set up simple processes to manage your inventory and adequately account for depreciation expenses going forward. You should also notify your tax professional if you sell or donate an item that had been subject to depreciation in the past, as they will need to make an entry for it on your tax returns.
Collins is your partner for success.
We have a history of working with our customer companies to help them succeed. While you’re focused on running your business, allow our pros at Collins Manufacturing to introduce you to top-of-the-line towing equipment your employees and customers will love. Our Collins Manufacturing’s Hi-SpeedⓇ Dolly and Carrier Dolly systems are easy, safe to operate, light to transport, and durable to handle the toughest towing jobs. By providing our towing solutions for your employees, you’ll make their lives easier and improve their job satisfaction.
Collins has been an industry leader in towing equipment for over 45 years. Our Hi-SpeedⓇ Dolly and Carrier Dolly systems provide towing professionals with lightweight solutions durable enough to get even large vehicles out of challenging situations and transport them safely wherever they need to go. Our products are designed with safety first to keep your employees safe while attaching and moving vehicles. Visit our website or call us to learn more about our products.
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