Whether you run a home-based small business or a Fortune 500 corporation, year-end is tax time. June Walker, the tax pro to the independent professional, has some great tax tips — regardless of what side of year-end you may find yourself. She calls it the December 31 Rule — and it’s the source of some often-missed deductions. They’re excerpted below from her Five Easy Steps booklet.
As June writes, “The following excerpt from my publication, Five Easy Steps, may help you with some last minute tax deductions….
For Credit Cards: Every item charged to your bank credit card on or before December 31 is an expense for that year, even if the credit card bill isn’t paid until the following year. The exception to that rule – yes, here’s another exception — is for store credit cards. An item purchased using a store credit card cannot be deducted as a business expense if it has not been paid for by year-end.
If you purchase a computer from OfficeArsenal on December 31, 2011 and charge it to your BigBank VISA, BigBank pays OfficeArsenal. You do not owe OfficeArsenal for the computer, you owe BigBank. You’ve paid for your computer with the bank’s money; it’s the bank you haven’t paid. Same as if you’d borrowed the money from Momma and plan to pay her back as soon as your client pays you.
However, if you charged that computer to your OfficeArsenal credit card you could deduct only the amount of money that you had actually paid OfficeArsenal. You did not yet pay for your computer because OfficeArsenal had not yet received its money. If you failed to pay the balance owed then OfficeArsenal could repossess your computer.
For Checks: An invoice or bill that you paid by check dated December 31,2011 or earlier, regardless of when it clears your account, is considered paid in 2011. If it’s a business expense it should be deducted on your 2011 tax return and put away with your 2011 records.
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