It’s that time of year again when businesses and individuals are organizing their expenses for tax deductions. While there are a myriad of potential deductions, following are a few of the most frequently overlooked.
Business Deductions
New equipment. Section 179 of the Internal Revenue Code allows businesses to deduct in one year, rather than capitalizing them over several years, the total cost of new equipment up to a maximum of $125,000. However, this deduction is subject to being phased out if a business places over $500,000 of new equipment in service during that year. Assets that do not qualify for a Section 179 deduction include real estate, property purchased from a close relative, and inventory purchased for the purpose of resale.
Business Deductions
New equipment. Section 179 of the Internal Revenue Code allows businesses to deduct in one year, rather than capitalizing them over several years, the total cost of new equipment up to a maximum of $125,000. However, this deduction is subject to being phased out if a business places over $500,000 of new equipment in service during that year. Assets that do not qualify for a Section 179 deduction include real estate, property purchased from a close relative, and inventory purchased for the purpose of resale.
Software. Although computer software generally must be depreciated over 36 months, there are two notable exceptions. If software is placed in service between January 1, 2003 and December 31, 2010, it is eligible for a 100% deduction in one year under Section 179. For software included as part of a newly purchased computer system that cost no more than $125,000 in 2007, the entire cost can be deducted in one year under Section 179. For further clarification, see IRS Publication 946, How to Depreciate Property.
Insurance. The necessary and ordinary cost of insurance for your business, trade, or profession is usually deductible.
Repairs and maintenance. The costs of repairing or maintaining business equipment, buildings, and office space are deductible as business expenses.
Startup costs. Up to $5,000 in startup costs for a new business can be deducted in the year that the business is established.
Disabled access credit. Small businesses with revenues of $1 million or under and fewer than 30 full-time employees may be eligible to deduct expenditures to remove barriers to accessibility by disabled individuals (in buildings constructed before 1990) and to acquire or modify equipment or devices for individuals with disabilities. The maximum credit in 2007 is $5,000 (See instructions on IRS form 8826 which can be found at www.irs.gov).
Deductions for Individuals
Education. Generally, the cost of education necessary to maintain or improve your job skills is a deductible expense.
Job-related expenses. Certain unreimbursed job-related expenses, such as travel, uniforms, and union dues, are deductible.
Medical expenses. If your medical expenses amount to more than 7.5% of your income, the following costs may be deductible: medical transportation expenses, eyeglasses, hearing aids, equipment for disable or handicapped persons, salaries paid to nursing personnel, and the cost of alcohol and drug abuse programs.
Long-term care insurance premiums. The amount of qualified long-term care premiums that can be included as medical expenses ranges from $290 to $3,860 depending on the age of the insured.
Any tax information contained in this article should be reviewed with a tax professional before taking any of the deductions or credits discussed.
