Chapter 26
Get a Handle on Taxes
To you taxpayers out there, let me say this: Even though income taxes can be a pain in the neck, the folks at the IRS are regular people just like you, except that they can destroy your life.
—Dave Barry
Taxes are one of those things that almost every entrepreneur hates dealing with. So, I will make with you the same deal that I make with the readers of my weekly USA TODAY column whenever I write about taxes: give me just a bit of your time, and I will make this as painless as possible—and maybe save you some money in the process.
Tax Basics
The amount that you or your business will pay in annual taxes depends on several factors: the legal form of your business, how much money it made during the year, what your expenses were, how sharp your accountant is, and how much you personally know about the tax system. Here is what you need to know about taxes if you run a small business.
Deductions
You already know that you can deduct “ordinary and necessary” business expenses to reduce your taxable income. That's the easy part. Travel, supplies, inventory, labor costs—all are deductible from your federal income taxes. The real question is, Are there any loopholes you can use?
- Entertainment. It used to be that you could deduct up to 80 percent of all legitimate entertainment expenses, but the limit now is 50 percent. The good news is that almost any entertainment activity that relates to your business can be deducted: a round of golf, an important dinner, ...
