Tax Deductions for Professionals: Nolo's Top Ten
by
Attorney Stephen Fishman
Learn about the best tax deductions for professionals who own their own businesses.
If you’re a professional, no one needs to tell you that taxes are one of your largest expenses. The IRS doesn’t make a point of advertising ways to lower your taxes and it certainly won’t complain if you don’t take all the tax deductions you’re entitled to. In fact, many professionals miss out on all kinds of deductions every year simply because they aren’t aware of them -- or because they neglect to keep the records necessary to back them up.
Here are the top ten tax deductions that every professional business owner should know about.
1. Business operating expenses. This includes all your ordinary and necessary business expenses -- the bread-and-butter costs virtually every professional incurs for things like rent, supplies, and salaries. If you don’t maintain an inventory or buy expensive equipment, these day-to-day costs will probably be your largest category of business expenses -- and your largest source of deductions.
2. Business entertainment. Many important business meetings, client contacts, and marketing efforts take place at restaurants, golf courses, or sporting events. The tax law recognizes this and allows professionals to deduct half of the cost of business-related entertainment. However, because taxpayers have abused this deduction in the past, the IRS imposes strict rules limiting the types and amount of entertainment costs you can deduct.
3. Local travel. Professionals can deduct the costs of local transportation expenses if they are ordinary and necessary for their business. It makes no difference how you travel -- by car, van, SUV, limousine, motorcycle, taxi, bus, or train -- or whether the vehicle you use is owned or leased.
 | If I lease a car, can I deduct the payments? |  |
But, beware: transportation expenses are a red flag for the IRS. They are the number one item that IRS auditors look at when they examine small businesses, partly because most people use the same car for business and personal use.
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