What qualifies as a tax write off for a small business?

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Many things are tax deductible and some require choices in how you want to expense them. You mentioned gas for instance. Gas in never deductible for commuting to your business site. However, for other purposes such as sales calls, buying office supplies, picking up inventory, etc. you can either depreciate the value of the vehicle (only the percentage used for business) and deduct the costs of maintenance and gas on that percentage. Or make it easy on yourself and for business miles that are non-commuting take the standard per mile rate which is currently $.56 per mile. This figure changes often depending on the price of gas. Mileage for volunteer activities and medical appointments can also be deducted in certain circumstances. You must keep accurate records for the mileage, however. I recommend you get a Auto Mileage book for less than $2 to keep track.

For local and state taxes you will need to consult a tax expert in your area.

Mark,

In general terms, anything used exclusively for your business can be deducted. With a large company, in it's own offices, this becomes fairly easy - the rent, heat, phone, toner, etc. are all deductible, because they are owned by the business, on the business' premises...you get the picture.

In a home-office situation (I'm assuming that's your case?) it's a bit trickier. For example, if your home phone doubles as your business phone, you need to divide out the business usage from your home usage. Ditto for internet access, rent, utilities - anything which you share between business & personal needs to be split.

There are two approaches to take here. One is to have, wherever possible, dedicated business-use-only facilities & equipment. Have a phone line only for your business. A computer too. That makes it easy to determine what is for the business (and therefore deductible) and what is not. The other option is to perform estimates of usage.

Gail's suggestion of taking mileage for the car is a good one. To handle that, you'll need to keep a simple log with these columns - Mileage at start, Mileage at end, Mileage for trip, purpose of trip, date.

The potentially stickiest issue is the home office. First off, you need to determine a method to allocate business-use-of-the-home costs, and stick to it; the tax man frowns on constant changes in estimates. The typical approach is to take the square footage of your office, and divide it by the total square footage of your home - that's the proportion of mortgage interest, utilities, and related costs that you can allocate to the business.

There are three gotchas here:
1) Assuming you're in the US, mortgage interest is tax deductible in your hands as an individual - you don't want to pass that over to the business if you can help it!
2) Your office space can ONLY be used for business purposes. I know of one case where the government disallowed all deductions because the taxpayer kept personal storage items (like skis) in his office - the government deemed it a "personal use" space for this reason. Be very careful!
3) Keep thorough records of your calculations, and keep them handy. Every year, the government chooses a "set" of individuals to audit based on the likelihood of tax fraud, and one of the most common audits is the home-based business. The auditor knows a lot more about the tax code than you do, so don't be cute & don't be fancy. Keep it simple and defensible, and if you're not sure, don't claim it.

With this information, you have enough to speak intelligently with a decent tax accountant. Just make sure that you do! They can often provide you with not only the rules, but handy ways to keep in compliance.

My wife and I ran a retail business of about this size for 10 years. Since you indicate that this is a retail business, I assume this is not in your home. In general, all the costs of rents, payroll, payroll taxes and benefits are fully deductable. You did not say if you had incorporated this business; if so, the rules can be slightly different, particularly with respect to you, the owner. If a sole proprietorship, you do not take a salary, just pay tax on the profit. This is also true for an S corp. But a C corporation has different rules, but I would suspect you are not a C corp being quite small. For a sole proprietorship, you file schedule C on your personal return. This is not difficult if you have an accounting system such as QuickBooks to keep the records.

Note that you will need to have inventories which are not deductable until you sell the item. Fixtures and equipment must be amortized using tax depreciation rules. There are special rules that allow you to deduct a large amount of capital equipment in the first year if you make this election when you file the tax return.

I urge you to get an accountant that understands this as it is easy to make foolish mistakes which become harder to correct once on your tax return. A good accountant can also keep you out of trouble financially, make sure you know how much is in your bank account, assure you are collecting from customers etc.

One final thought, you may be a cash business or accept most payments by check or by credit card. Regardless, be sure to have excellent records of cash receipts which can be traced to bank deposits. Otherwise, God help you when the IRS shows up to audit.