Three Tax Deductions Small Businesses Should Consider

In previous years, the provisions of the §179 deduction have been quite generous and offered small businesses the means to greatly reduce taxable income. However, there are some changes for 2015. For example, in 2015 the spending cap on new equipment purchases has been reduced from $500,000 to $200,000, and the maximum deduction is $25,000. As in previous years, the deduction is reduced dollar for dollar for any amount that exceeds the spending cap. Also, bonus depreciation will not be in effect for 2015 as of now. In the past, bonus depreciation has been reinstated in last-minute legislative efforts, so affected parties should remain vigilant.

Considering the changes to §179, many small businesses will be seeking other ways to shrink taxable income. There are a few options that still remain in effect for 2015 that small businesses should consider. Here are three that are worth taking a look at:

    • Meals and entertainment expenses are often overlooked as an opportunity to save money. As long as a reasonable portion of time was spent actually discussing business or pursuing client leads, it is 50% deductible. Remember to save receipts and document the purpose of the meeting to safeguard against an audit.
    • Consider using the actual expenses of automobiles used for business purposes when calculating a deduction rather than using the standard mileage rate. The actual expenses that may be used in this calculation include but are not limited to: depreciation, lease payments, tires, repairs, and tolls. A best practice would be to keep a logbook in business-use vehicles to maintain accurate records of mileage and other expenses for that particular vehicle.
    • New businesses can and should deduct startup costs. These costs include any amounts paid in the course of creating an active trade or business. The first $5,000 is deductible in the first year with the remaining amount amortized over 15 years. The initial deduction is reduced by the amount that startup costs exceed $50,000.



Donald Wilson

Staff Accountant

Donnie is a Staff Accountant with Brown Schultz Sheridan & Fritz on the BSSF Audit Team.