Many of your business tax deductions will be obvious, and some will be mixed personal and business, especially if you are a sole proprietor. The basic rule to follow is that if you spent the money because you have your business, then it will be deductible in some form. Some expenses that are incurred in the start-up phase of the business have to be expensed over five years, like some fixed assets. And some other expenses have to be allocated between personal and business, e.g., a trip that is both for attending a conference and taking vacation. There are some ways to take advantage of business trips, staying a day or two over, e.g., to get reasonable airfares, or the weekend is incidental to the week long conference you attended. But you must be careful, and all business expenses must be documented with a receipt.
Records supporting tax deductions must be kept for 10 years; keep all tax forms for the life of the business. Other mixed personal and business use items, such as vehicles, must have a log book that is used concurrently with the use (keep it current). Odometer readings must be recorded, and receipts obtained for all gas, repairs, and other maintenance if the expense method is being used for the vehicle deduction.
To take business meals, a receipt should have name and brief purpose noted on it; or, when traveling, a per diem rate can be used when there is an overnight lodging receipt. When you stay with friends and/or family, get receipts for meals out and grocery shopping trips; the per diem cannot be used in this situation.
Office-in-home expenses can only be taken if at least 50% of your work time is spent in that space (this will become more flexible in 1999, with some restrictions), however, personal space used for storage can qualify for a deduction.
Remember to keep your receipts; monthly bills from charge card companies that list individual transactions can be substituted for actual charge receipts. Phone bills that are mixed personal and business should have business calls marked, and a name written next to it (who was called). If you are audited, you may have to show any and all receipts to substantiate your deductions; don’t get caught without them.
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