The United States has the highest corporate tax rate in the world, standing steady at 39.2% when both federal and state rates are calculated. On top of that, the IRS has concocted a labyrinthian tax code over the years that tops 72,000 pages and counting (as of 2011), ensuring that well-meaning small businesses will inadvertently get tripped up on some obscure law or regulation somewhere down the line.
Many entrepreneurs have found that it is simply cheaper and easier to do business in foreign countries that are friendlier to small businesses, subsequently diminishing our pool of intellectual capital as outside markets become more competitive. However, with a little knowledge, business owners can use this massive tax code to save money through all sorts of deductions they didn’t even know existed —all above board and all designed to save small businesses money. Here are just a few…
Vet bills, pet food and animal transport costs can be written off if you can show how that cat, dog or bird is vital to the operation of your business. For instance, in 2009, a South Carolina couple was able to write off the costs of feeding stray cats in the area because they were keeping snakes, rats and other vermin from infesting the property. Guard dogs, homing pigeons and a Japanese restaurant’s koi pond are other defensible examples.
The costs of maintaining a pool at a hotel, resort or any such place open to the general public is clearly a legitimate business expense. However, private enterprises can also write off costs such as cleaning and maintenance if they can show a medical, therapeutic or health-related use for the pool. For example, a personal fitness trainer who uses a pool on her own property to provide services to clients would qualify.
Having to fight a court battle is almost never a good thing. However, under certain circumstances, businesses are able to deduct verifiable legal costs such as lawyers and courts fees. According to IRS regulations set forth in Publication 529, small business owners can do so when accused of wrongfully terminating someone from their job. As a general rule, legal defense fees associated with the collection of taxes or taxable income are also deductible.
In 1988, a stripper received a $2,088 deduction for breast enlargement, as it was necessary for her to successfully operate within her profession. This subsequently set a precedent for tax write-offs in related areas. Other notable examples range from facelifts for entertainment personalities to gender augmentation for men who wish to excel in female-only occupations.
Fuel and maintenance costs on small charter planes can be deducted when a business owner can demonstrate that the plane was used for ends that directly impacted the bottom line. These expenses can range from the transport of goods to travel for meetings or conventions. The greater the business-related use, such as for a pilot training school, the higher the deduction.
Does the look of the grass, trees and shrubs around your workplace affect the way you’re perceived by clients, and in turn the amount of business you get? If so, this can be legitimately deducted from your taxes. Business owners who meet clients at their home, from massage therapists to tax advisors to hairdressers, can reasonably assert that a customer will judge the appearance of the outside to be indicative of the service quality on the inside.
Alcohol and Party Goods
Beer, wine and liquor are qualifying expenses when used to attract business. For instance, an entrepreneur who sets up shop in a new town may hold a party to attract clients. In this case, not only would the alcohol be deductible; so would other party expenses including music, food, lighting, decorations, wait staff and even the valet parking.
Trips to the Tropics
Sometimes it’s cool to mix business with pleasure. Companies can hold conventions in the Bahamas and deduct the costs without actually demonstrating a specific reason for them to be held there. Other Caribbean countries also qualify, including Bermuda, Jamaica, Barbados, St. Lucia, Trinidad and Tobago, the Dominican Republic, Guyana, Grenada, Cancun and all U.S. possessions, such as Puerto Rico and Guam.
Payments to Your Significant Other
A property owner hired his live-in girlfriend to manage his real estate holdings, with duties that included supervising repairs, decorating and running his personal household. The IRS permitted him to deduct $2,500 as an allowable business expense from the $9,000 salary she received. Such payments are considered deductible so long as the services are not routine household chores, but rather are directly attributable to the company’s operations. Such a deduction is especially helpful to couples running a start-up out of their own place.