Small Business Tax Deductions - "G" is For Gifts & Gas

Here are two valid expenses you can deduct on your small business income tax return, both beginning with the letter "G".

Gifts.
You can deduct the cost of gifts to customers and other business associates such as vendors, suppliers and service providers (like your accountant, atto
ey or insurance agent). Be careful, though, because the deduction is limited to $25 per individual recipient per year. Example: You purchase $60 fruit baskets and give them away over the holidays to your best customers. You only get to write off $25 per gift. The other $35 is non-deductible.

There's more "fine print" to this rule. You and your spouse are considered one taxpayer for purposes of the gift-giving deduction, even if you work in separate businesses. Example: You and your spouse are both sole proprietors. You are a self-employed computer programmer; your mate is a self-employed website designer. Mr. Smith happens to be a customer of both your businesses, so you each give him a $60 fruit basket. Together you spent $120, but between the two of you, only $25 is deductible. (Is that a nit-picky rule, or what?)

Gas.
If you are using a vehicle for your business, you get to deduct vehicle-related expenses such as gas to the extent the vehicle was used for business. There are two acceptable methods for determining your gas expense: The Actual Expense Method and the Mileage Method.

Actual Expense Method. If the business use of your vehicle is 100%, then 100% of gasoline cost is deductible. If you use the vehicle partly for business and partly for personal use, you must apply the business use percentage to your actual costs to come up with the deductible amount. The business use percentage is calculated by dividing business miles into total miles. Example: You drove your car a total of 10,000 miles last year, and 7,600 of those miles were for the business. So 76% of your gas expense is deductible (as is 76% of all your other car-related expenses such as insurance, repairs, maintenance, lease, and depreciation of the purchase price).

Mileage Method. Instead of keeping track of the actual cost of gas and other vehicle expenses during the year, you simply multiply the business miles by the IRS-established mileage rate. Usually there is one rate for a given calendar year. In 2009, that rate is 55 cents. So, if your drive your car 7,600 miles for business in 2009, the vehicle expense is $4,180 (7,600 x .55). For 2008, there are two rates: 50.5 for January-June and 58.5 for July-December. So you have to do two calculations and add them together to get the total car expense.

Important: Don't forget that the mileage method determines your total car expense, not just the gas expense. You use one of these two methods, not a combination of the two. So if you use the mileage method, that calculated amount is in lieu of the actual expense of not only gas, but also insurance, repairs, maintenance, lease and depreciation. Regardless of which method you use, you also get to deduct the actual expenses for vehicle loan interest, property taxes, parking fees and tolls.