1. Start-up Cost DeductionsYou can deduct up to $5,000 in start-up and $5,000 in organizational costs for the first year of business. These deductions apply to expenses paid or incurred after Oct. 22, 2004. The rules differ for expenses before that date or if your costs exceed $50,000. Expenses that are not deducted can be amortized over a 180-month period, which begins when you open your business. You can write off or amortize market research, advertising, employee training, business-related travel, legal advising and other costs.
2. Education DeductionsThe IRS has strict guidelines for deducting educational expenses, so be sure to read Publication 970, "Business Deductions for Work-Related Education," thoroughly. Generally, employers can deduct employee educational expenses if the courses maintain or improve job-related skills, or if employees need the education to continue in their current jobs. If you are self-employed, you can also write off some educational expenses. Transportation to and from the classes may be deductible. You can't write off any educational expenses that train you in a new field, however.
3. Vehicle DeductionsAuto deductions are clearly delineated under IRS rules and tend to be among the more scrutinized items, so meticulous record-keeping is critical. You can deduct vehicle expenses either by the mile (for tax year 2006, the IRS allowed a deduction of 44.5 cents per mile driven for business purposes) or for actual expenses such as gasoline and maintenance. If you use your personal vehicle on the job, keep careful records about where you went and the nature of your business. You also can write off a newly purchased vehicle (even if it's bought second-hand) in one deduction or through depreciation, which lets you write off parts of business equipment costs over several years.
The IRS stipulates that personal auto use cannot be written off as a business-related expense, so be sure to follow the guidelines in Publication 463. If your employees are using a business car for personal use, the IRS wants you to record the value in their W-2 forms or wages. For credits, keep an eye out for environmentally friendly IRS initiatives: You could receive up to $3,150 from the government if you have purchased a hybrid for your business since 2005. Check out Form 8910 for more details.