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As a small business owner, it's wise to familiarize yourself with some key deductions that may reduce your tax bill for 2004.

Employee Benefit Plans - You may deduct contributions to employee benefit plans (such as health insurance plans and retirement plans). Depending on your circumstances the maximum contribution that you may deduct per employee in a qualified retirement plan can go up to:

$100,000 or more With a Defined Benefit Plan$ 44,000 With a 401(k) plan$ 41,000 With a SEP-IRA or Keogh

Automobile Expenses- You can elect to deduct the actual expenses incurred (including gas, oil, tires, repairs, insurance, depreciation, and rent or lease payments) for the business-related portion of your car or truck expenses, or simply take the 2004 standard mileage rate of 37.5 cents per business mile.

Social Security Taxes - You may deduct Social Security and Medicaid taxes paid to match required withholdings on employee wages, federal unemployment taxes, as well as real estate or personal property taxes paid on business assets.

Home Office - Depending on whether you use your home or other real estate for business purposes, you may deduct some or all of any mortgage interest paid, as well as some or all of the maintenance and repair expenses associated with the property. The cost of utilities and business supplies associated with business use are also deductible.

Depreciation - Depreciation may be taken on passenger cars, equipment used for entertainment or recreational purposes (i.e., photographic equipment, cell phones and computers), as long as these items are used solely for the business.

Bonus Depreciation - The 'bonus' depreciation deduction of up to 50 percent of the cost of new business equipment in the year of purchase applies only to property placed in service on or before December 31, 2004. You may want to consider making any significant equipment purchases before year-end to take advantage of this expiring provision.

Professional Fees - You may deduct professional fees, such as those paid to a lawyer or accountant.

Meals and Entertainment - You may deduct 50 percent of meal and entertainment expenses associated with the conduct of your business.

State and Local General Sales Tax - Beginning in 2004, you will have the option of electing to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction provided for state and local income taxes.

Charitable Donations of Vehicles – Through 2004, a deduction equal to the fair market value of a donated vehicle is allowed. Starting next year, however, the deduction allowed will generally be limited to the gross proceeds from the sale of the vehicle by the charitable organization.

Remember to keep on file the records and documentation necessary to substantiate all of your deductions. You should consult a tax preparer or professional tax advisor to determine how specific tax rules may impact your individual situation.

About The Author

Daniel Lamaute specializes in setting up retirement plans for the self-employed. Visit http://www.investsafe.com to learn about methods to maximize retirement contributions and to reduce taxes and penalties on early withdrawals.

This article was posted on December 09, 2004some content courtesy ArticleCity.com

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