|
Starting Your BusinessWhat are Business ExpensesTaxesYou can deduct as business expenses various federal, state, and local taxes directly attributable to your trade or business. Income taxes. You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your trade or business. You can deduct any other state and local income taxes if you itemize deductions on Schedule A (Form 1040). Do not deduct federal income tax. A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Employment taxes. You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. These taxes are explained in Publication 334 Tax Guide for Small Business. You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Self-employment tax. You can deduct half of your self-employment tax as an “adjustment to income” on the appropriate line of Form 1040. Self-employment tax is explained in Publication 334 Tax Guide for Small Business. Personal property tax. You can deduct as a business expense any tax imposed by a state or local government on personal property used in your trade or business. Registration fees for the right to use property within a state or local area are also deductible as a business expense. Real estate taxes. You can deduct as a business expense the real estate taxes you pay on your business property. Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. The taxes must be based on the assessed value of the real estate and must be charged uniformly against all property under the jurisdiction of the taxing authority. Sales tax. Sales tax you pay on a service or on the purchase or use of property is treated as part of the cost of the service or property. If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. If the property purchased is merchandise bought for resale, the sales tax is part of the cost of the merchandise. If the property is depreciable, add the sales tax to the basis for depreciation. Sales tax imposed on the buyer that you collect and pay over to the state or local government is not included in gross income and is not deducted as an expense. TIP. You can elect to deduct state and local general sales taxes instead of state and local income taxes as an intemized deduction on Schedule A of the Form 1040. If you choose to deduct sales taxes in this manner, you cannot deduct them as a business expense. Excise taxes. You can deduct all excise taxes you pay or incur as ordinary and necessary expenses of carrying on your trade or business. Excise taxes are discussed briefly in Publication 334 and Publication 535. Fuel taxes. Taxes on gasoline, diesel fuel, and other motor fuels that you use in your trade or business usually are included as part of the cost of the fuel itself. Do not deduct these taxes as a separate item.
Publication
334
Tax Guide for Small Business
|