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Top Tax Deductions For Your Small Business
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8. New Equipment
Some small businesses can write off the full cost of some assets in the year they buy them, rather than capitalizing them -- deducting their cost over a number of years. (See Current vs. Capital Expenses for information on expenses that must be capitalized.)
Section 179 of the Internal Revenue Code allows you to deduct up to $250,000 of the cost of new equipment or other assets in 2008 ($125,000 in 2007). This is subject to a phase-out if you place more than $800,000 of equipment in service in 2008 ($510,00 in 2007). Some assets don't qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative.
9. Interest
 | Can I fully deduct the cost of gifts to employees? |  |
If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business. Be sure to keep good records demonstrating that the money was used for your business.
10. Moving Expenses
If you move because of your business or job, you may be able to deduct certain moving costs that would otherwise be non-deductible personal living expenses. To qualify, you must have moved in connection with your business (or job, if you're an employee of your own corporation or someone else's business). The new workplace must be at least 50 miles farther from your old home than your old workplace was. (Technically, moving expenses aren't business expenses; there's a special place to list them on your Form 1040 tax return.)
11. Software
As a general rule, software bought for business use must be depreciated over a 36-month period, but there are some important exceptions:
- Computer software placed in service from January 1, 2003 to December 31, 2010 is eligible for a Section 179 deduction, which means that 100% of the cost of software can be deducted in the year purchased. Starting in 2011, you will no longer be able to use Section 179 to deduct off-the-shelf software.
- When software comes with a computer, and its cost is not separately stated, it's treated as part of the hardware and is depreciated over five years. However, under Section 179, you can write off a whole computer system (including bundled software) in the first year if the total cost is less than a certain amount ($250,000 in 2008; $128,000 in 2007). See IRS Publication 946, How to Depreciate Property.
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