Your Guide to Small Business Tax Deductions

As with any tax deduction, the more expenses that you, as the business owner, can identify as legitimate expenses to deduct, the more take-home pay you get to walk away with.

If you know what is - and is not - deductible, then you are already a step ahead in your business.

Here are 3 important small business tax deductions that you should familiarize yourself with.

Business Use of Your Home

For many self-employed business owners, you may be using your home as the principal location where your business is conducted. Even if you have satellite locations that you travel to for business, you still may be able to take a home deduction if the bulk of your work is performed in the home.

According to IRS Publication 587, Business Use of Your Home, in order to deduct expenses, part of your home must be used regularly and exclusively as one of the following:

1. The principal place where you conduct your trade or business

2. The place where you meet and deal with your patients, clients or customers in the normal course of your trade or business

When defining your home, include any separate dwellings on the same parcel of property, such as an office that you have set up over a detached garage.

The following expenses can be deducted in whole or in part - painting, repair and general modifications made to your designated business area, the installation of required handicap access accommodations, home insurance, real estate taxes, security systems and utilities. You cannot deduct your mortgage payment.

Be cautious when considering expenses that are shared between both business and personal usage. Deduct only the portion of expenses allocated for business.

Business Use of Your Vehicle

If a vehicle is used solely and exclusively in your business, then the full cost to operate it may be deductible. Otherwise you will need to consider the overall proportion of business usage compared to concurrent personal usage.

The IRS presents two methods to deduct business vehicle expenses. You can use the standard mileage rate or take the actual vehicle expenses you've incurred.

The standard mileage rate for 2010 was a 50 cent reimbursement for every business mile driven. If you are using this method, you need to identify what types of miles are considered deductible for business purposes. See the link to Publication 463, below.

If you are deducting actual expenses, the following are allowable: Lease payments (not ownership payments), gas and insurance, oil changes and tires, general maintenance, tolls and parking fees, garage rent, licenses / registration and depreciation.

For more information, see Chapter 4 of IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Business Travel Expenses

Unless you are operating an exclusively home-based business, you likely have travel expenses that qualify as a business deduction.

Business travel is generally defined as an overnight trip. If you are required to leave your home in order to perform work-related duties, and if these responsibilities take substantially longer than an ordinary day's work, then you can take a deduction.

Travel expenses are those that are incurred for travel lasting at least one night, up to temporary work reassignments that last one year.

The following are deductible: The purchase price for travel by air, plane or bus from your home to the business location, the use of your car while at the business location, taxi fares, meals and lodging (including tips), dry cleaning, business calls and business internet fees.

See Chapter 1 of Publication 463 for more information on travel expenses, as well as expenses related to business or client entertainment expenses.