Starting Your Business/Keeping Tax Records
What are Business Expenses
Business expenses are the costs of carrying on a trade or business.
These expenses are usually deductible if the business is operated
to make a profit.
To be deductible, a business expense must be both ordinary and
necessary. An ordinary expense is one that is common and
accepted in your trade or business. A necessary expense
is one that is helpful and appropriate for your trade or business.
Important Changes for 2001
Standard mileage rate. The standard mileage rate for the
cost of operating your car, van, pickup, or panel truck in 2001
is 341/2 cents a mile for all business miles. See chapter
13 of Publication 535.
Marginal production of oil and gas. The suspension of
the taxable income limit on percentage depletion from the marginal
production of oil and natural gas scheduled to expire for tax
years beginning after 1999 has been extended to tax years beginning
before 2002. For more information on marginal production, see
section 613A(c) of the Internal Revenue Code.
Third party designee. Beginning with your tax return for
2001, you can check the "Yes" box in the "Third
Party Designee" area of your return to authorize the IRS
to discuss your return with a friend, family member, or any other
person you choose. This allows the IRS to call the person you
identified as your designee to ask any questions that may arise
during the processing of your return. It also allows your designee
to perform certain actions. See your income tax package for details.
Important Changes for 2002
Health insurance deduction for the self-employed. For
2002, this deduction is 70% of the amount you pay for health insurance
for yourself and your family. See chapter
7 of Publication 535.
Meal expense deduction subject to "hours of service"
limits. In 2002, this deduction increases to 65% of the reimbursed
meals your employees consume while they are subject to the Department
of Transportation's "hours of service" limits. chapter
13 of Publication 535.
Retirement plans. Many changes to the tax laws for retirement
plans were made by the Economic Growth and Tax Relief Reconciliation
Act of 2001 that was enacted on June 7, 2001. However, most of
those changes do not take effect until after December 31, 2001,
and are not covered in this publication. For information about
those changes, see Publication 560, Retirement Plans for Small
Business, or Publication 553, Highlights of 2001 Tax Changes.
Maximum clean-fuel vehicle deduction. The maximum deduction
clean-fuel vehicle and qualified electric vehicle credit limit
are lower for 2002 than they were for 2001. They will be completely
phased out by 2005. chapter
12 of Publication 535.
Important References
Publication
535 Business Expenses
