Tax-Saving Strategies

Q: I know that as an entrepreneur, I have a number of tax-saving options available to me. How can I best take advantage of these options?

A: You're absolutely right. There are a number of tax-saving strategies small-business owners can use to create business tax deductions out of what would otherwise be considered personal expenditures. The following is a discussion of each of the major opportunities to make your life tax-deductible as an entrepreneur:

Your home: As a small-business owner, you may qualify to take a home office tax deduction. In order to qualify for the deduction, the use of your home office must be both "exclusive" and "regular." If you qualify, you may deduct certain other expenditures, such as depreciation and the indirect expenses of operating your home, on a pro-rata basis. Even if you fail to qualify for the home office deduction, you are still allowed to deduct other business expenses that you incur while operating your business out of your home.
Your car: If you use your car in your business, you can deduct the costs of operating and maintaining your car. However, you can only deduct the portion of your car that pertains to business only. This is accomplished by pro-rating or allocating the total cost of operating and maintaining your car between deductible business use and nondeductible personal use. Business costs can be deducted by using either actual costs or the standard mileage rate.
Your equipment: You can convert personal assets into business assets by contributing them to your business. You can do so by giving them to your business either in exchange for a loan document or as contributed capital. If you received a loan document, the business will repay you principal (the market value of the assets) plus interest on a periodic (generally monthly) payment schedule (called amortizing a loan). If you considered the assets to be a contribution of capital, this contributed capital can be used to substantiate your ownership position in your business.
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