Some people try to get away with the most absurd things come tax time. Bankrate.com wrote a classic piece on the nine weirdest tax write-offs individuals have tried to take, such as the Amish fellow who pimped out the buggy he used for business and tried to deduct the accoutrements, including a velvet interior and tinted windshield, or the landscaper that deducted the expense of his dog because it would pull the wagon at jobsites.

Tax time can result in temporary insanity in the best of us. The Bankrate story just reminds us that reviewing legitimate tax write-offs and being aware of the newest tax rules can help you file a tax return that won’t raise IRS eyebrows — or make your CPA fall over from laughter.

You work hard for your money. So why hand it over to the Internal Revenue Service when you don’t need to?

Many entrepreneurs overlook perfectly justifiable — and legal — tax deductions simply because they are unaware of them. So before the 2006 tax season begins, take the time to review the deductions to which you are fully entitled. To help you get started, here are the top five tax deductions that most small business owners often overlook:

1. Equipment expensing | Buying computers, telephone systems, furniture or other equipment instead of leasing it entitles a business to write-off their cost, usually over a fixed number of years using depreciation. However, small businesses that are profitable can benefit from a so-called Sec. 179 deduction. This means a business can deduct up to $108,000 of cost for a single piece of equipment or in various items as long as equipment is placed in service before the end of the year. This deduction limit will rise to $112,000 in 2007.
2. Commercial buildings that go green | New for 2006 is a deduction for commercial building owners whose buildings meet certain energy standards. The deduction is as much as $1.80 per square foot for buildings that achieve a 50 percent energy savings target.
3. Domestic production activities | This deduction enables businesses to lop off 3 percent of their net profits from domestic production activities from their income — resulting in significant tax savings for owners without spending a single additional penny to receive the write-off.
4. Accelerated depreciation for building components. | The cost of commercial buildings (exclusive of land) usually can be depreciated over 39 years using the straight line method (i.e., ratable depreciation). However, parts of the building that are not viewed as structurally integral can be separately depreciated over much shorter periods (typically five or seven years) using an accelerated depreciation method. The more rapid the write-off, the greater the up-front savings to the building owner due to the time value of money.
5. Vehicle use | Business use of an owner’s personal car can be deducted using the IRS standard mileage rate (44.5¢ per mile in 2006) or the actual expenses related to this use. Dollar limits cap annual depreciation write-offs. Higher dollar limits apply to light trucks and vans.

   SUVs weighing more than 6,000 pounds are not subject to the usual dollar limits on depreciation. The top limit on the Sec. 179 deduction for these vehicles is $25,000; additional cost can be depreciated under usual depreciation rules.

Barbara Weltman at Inc.com

Which places are low on taxes and light on government regulations? Exclusive rankings for FSB.com from the Small Business & Entrepreneurship Council.

1. South Dakota
2. Nevada
3. Wyoming
4. Alabama
5. Washington
6. Florida
7. Mississippi
8. Colorado
9. Texas
10. Michigan

See where your state ranks.

Ask small-business owners how much time they spend on the job and the answer is usually the same: all of it.

Yet, some entrepreneurs manage to launch a start-up on the side without quitting their day job. While it’s a lot like leading a double life, many say the rewards are worth it — namely, extra income and the chance to test out a new, often more enticing career without losing steady paychecks and benefits.

“Starting a business on a part-time basis is one of the most efficient ways of finding out if a business will work for you,” says Paul Edwards, co-author of 16 books on self-employment, including “Finding Your Perfect Work.”

In 2004, Mr. Stim decided to start a side business, an audio-book production business. It was part of his research for “Whoops! I’m in Business,” a guide he wrote on turning a passion or hobby into a business.

The new studio landed a contract almost immediately, and “boy, you really freak out once you’ve got a contract,” he says. One concern: “How do you not blow it at both jobs at once?”

Mr. Stim says he’s able to swing both by working for Nolo from home, which saves valuable commuting time, and by enlisting his wife as a partner at the sideline business, Sutro Studios.

One tax benefit to the side business: He can write off the cost of audio equipment, which he enjoys as a long-time music-production enthusiast. If the side business is something you love, there’s nothing like it, Mr. Stim says. “It augments my income, and it gives me something fun to do.”

Because of the drain on your free time, be sure to involve family members in the decision-making process. Without the proper amount of family consent, this can torpedo the relationship with the family.

startupjournal.com

Question: I’m a real-estate consultant and conduct most of my business at home. Can you share your thoughts with me about the pros and cons of taking a deduction for a home office?

Answer: Read on the StartUp Journal

Most business owners know that certain entertainment expenses are deductible under some circumstances, but judging by the large number of questions I get on this topic, I don´t think many people actually know the rules.

Like all business deductions, entertainment costs must be “ordinary and necessary” in order to qualify. If your business is a used furniture shop, it´s not very likely that the cost of taking one of your customers to dinner and a movie would be an ordinary and necessary business expense. On the other hand, it could be, if for example the customer you take out for the evening is furnishing a motel and is prepared to spend $45,000 on furniture.

Here is the information Sara needs to record in order for the cost of taking Emily to lunch to qualify as a deductible business expense:

• The location — Mavis´s Downtown Country Cooking
• Names of people entertained — Emily (in “real life” you would want to include the person´s last name), owner Clean as a Whistle
• Date — November 8, 2006
• Business purpose — Discuss flex plan with business owner
• Amount spent — $35

Treasury Regulations state that this information must be recorded in a timely manner — in other words, you should record the information soon after the entertainment event rather than waiting until the day before an IRS audit.

The location, date, and amount spent are already on the receipt Sara gets from the restaurant, so all Sara needs to do is write Emily´s name and the business purpose somewhere on the receipt and make sure the receipt is properly filed.

All Business

By the Census Bureau’s last count in 2002, half of all businesses in the U.S. are home-based. The U.S. government encourages this kind of entrepreneurship. Dig deep and at-home entrepreneurs will find a few precious tax deductions.

Alterations to the tax code in 1999 made it easier to qualify for home-office tax deductions. Below are five deductions homebodies would be foolish to ignore. To increase your odds of success, be sure to keep your business and personal life separate–including all checking accounts, credit cards and phone bills.

1. Infrastructure (utilities, phone service, housekeeping services, landscaping) Run-of-the-mill homeowners and renters can’t deduct these expenses, but at-home entrepreneurs can.

2. Home mortgage interest and property taxes. U.S. taxpayers can deduct these anyway, but as a small business owner, you can save even more by applying a percentage of mortgage interest and property taxes to the home-office section of your tax form.

3. Travel expenses. You can’t deduct fuel expenses if you commute to work each day, but if you work from home, you can deduct the costs of traveling away from your home for any business-related activity.

4. One-time office equipment purchases. Section 179 of the tax code says you can take a one-time deduction–up to $105,000–for the purchase of office equipment, as long as you don’t purchase more than $400,000 of equipment in a calendar year.

5. Family affair. Sole proprietors with children under 18 who work for them can deduct their children’s “wages.”

Forbes.com