The District Chronicles

Issue date: 6/28/09 Section: Business

(ARA) - Small business owners face a variety of financial challenges, from securing financing and creating a marketing plan, to maintaining accounting books and minimizing tax liabilities. Regardless of whether business owners do the bookkeeping themselves or outsource it, they are responsible for staying organized and strategizing to increase the bottom line.

Standard deductions, such as automobile expenses, must be tracked on a regular basis. Automobile expenses can either be tracked by multiplying mileage by the standard 2009 mileage rate of 55 cents, or by claiming the actual business-related expenses for the vehicle. (Note that standard mileage rates cannot be included on Forms 1065, 1120 and 1120S.)

In addition, travel expenses can include the cost of plane tickets, taxis or vehicles, as well as lodging and meals if the primary purpose of the trip is business. When family or friends accompany the business owner, just the owner's travel expenses can be deducted. Expenses related to advertising, promotions, interest on borrowed money (with record of where and how the money was spent) and bank fees are also fully deductible.

The amount and purpose of all expenses should be documented and tracked in the event that the IRS requests proof of expenditures. A receipt-scanning program, such as Shoeboxed, helps users to quickly and easily store and categorize receipts with deducible expenses. Mileage logs should include odometer readings, total miles driven, percent of mileage used for business, destination and purpose of the trip.

Other expenses are more challenging to discern, but the time taken to research and document them can save thousands of dollars in taxes owed. Legal and professional fees are generally deductible in the year they are incurred. However, if the consultation relates to future years, the fees must be deducted over the life of the benefit. Business entertainment expenses may be 50 percent deductible if business is discussed during the gathering. The business purpose and attendees should always be noted on the receipt or bill.

Higher contribution limits for 2009 allow business owners to save additional retirement money. For example:

1. SEP and profit-sharing plan limits increased from $46,000 in 2008 to $49,000 in 2009.

2. The defined benefit (pension plan) limit increased from $185,000 to $195,000.

3. 401(k) elective deferrals are now $16,500 versus $15,500 in 2008. In addition, those age 55 or older can contribute another $5,500, up from $5,000 in 2008.

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