Income Tax Filing for Company/LLP/Firm

An ‘eligible assessee’ with gross receipts of less than Rs. 2 Crs in a year can avail of the scheme of presumptive taxation in India. Under presumptive taxation, the eligible assessee does not have to maintain any books of accounts and has to declare 8% (or 6% if receipts are through electronic clearing system or bank draft) of its gross receipts as taxable income. This scheme’s intention is to give relief to small businesses from bookkeeping and auditing requirements. This scheme can be availed only by resident individuals (i.e. proprietorship concerns), resident HUF, and partnership firms (but not LLPs).

The home office deduction is one of the more complex of all. In short, the cost of any workspace you use regularly and exclusively for your business, regardless of whether you rent or own it, can be deducted as a home office expense.

You are basically on the honor system, but you should be prepared to defend your deduction in the event of an IRS audit. One way to do this is to prepare a diagram of your workspace, with accurate measurements, in case you are required to submit this information to substantiate your deduction, which uses the square footage of your workspace in its calculation.

In addition to the office space itself, the expenses you can deduct for your home office include the business percentage of deductible mortgage interest, home depreciation, utilities, homeowners insurance, and repairs that you pay during the year. If your home office occupies 15% of your home, for example, then 15% of your annual electricity bill becomes tax-deductible. Some of these deductions, such as mortgage interest and home depreciation, apply only to those who own rather than rent their home office space.

Regardless of whether you claim the home office deduction, you can deduct the business portion of your phone, fax, and internet expenses. The key is to deduct only the expenses directly related to your business. For example, you could deduct the internet-related costs of running a website for your business.

If you have just one phone line, you shouldn't deduct your entire monthly bill, which includes both personal and business use. According to the IRS website, "You can’t deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home."

If you are self-employed, pay for your own health insurance premiums, and are not eligible to participate in a plan through your spouse's employer, you can deduct all of your health, dental, and qualified long-term care (LTC) insurance premiums.

You can also deduct premiums that you paid to provide coverage for your spouse, your dependents, and your children who were younger than 27 at year-end, even if they aren't dependents on your taxes. Calculate the deduction using the Self-Employed Health Insurance Deduction Worksheet in Income Tax.

A meal is a tax-deductible business expense when you are traveling for business, at a business conference, or entertaining a client. The meal cannot be lavish or extravagant under the circumstances, and in the past, you could only deduct 50% of the meal's actual cost if you keep your receipts, or 50% of the standard meal allowance if you keep records of the time, place, and business purpose of your travel but not your actual meal receipts.

Temporary allowance of a full deduction for business meals. The bill temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant.

Further, to be considered a business trip, you should have a specific business purpose planned before you leave home and you must actually engage in business activity—such as finding new customers, meeting with clients, or learning new skills directly related to your business—while you are on the road. Handing out business cards at a bar during your friend’s bachelor party won’t make your trip to Vegas tax-deductible.

Keep complete and accurate records and receipts for your business travel expenses and activities, as this deduction often draws scrutiny from the IRS. Deductible travel expenses include the cost of transportation to and from your destination (such as plane fare), the cost of transportation at your destination (such as car rental, Uber fare, or subway tickets), lodging, and meals.

You can’t deduct lavish or extravagant expenses, but you don’t have to choose the cheapest options available, either. Don't forget that you, not your fellow taxpayers, will be paying the bulk of your travel costs, so it's in your interest to keep them reasonable

Using the standard mileage rate is easiest because it requires minimal record-keeping and calculation. Just write down the business miles you drive and the dates you drive them. Then, multiply your total annual business miles by the standard mileage rate. This amount is your deductible expense.

To use the actual expense method, you must calculate the percentage of driving you did for business all year as well as the total cost of operating your car, including depreciation, gas, oil changes, registration fees, repairs, and car insurance. If you spent $3,000 on car operating expenses and used your car for business 10% of the time, your deduction would be $300.

If you want to use the standard mileage rate on a car you own, you need to use that method in the first year the car is available for use in your business. In later years, you can choose to use either the standard mileage rate or switch to actual expenses. If you are leasing a vehicle and wish to use the standard mileage rate, you must use the standard mileage rate in each year of the lease period.

As with the home office deduction, it may be worth calculating your deduction both ways so you can claim the larger amount.

Interest on a business loan from a bank is a tax-deductible business expense. If a loan is used for both business and personal purposes, the business portion of the loan's interest expense is allocated based on the allocation of the loan's proceeds.

You will need to track the disbursement of funds for various uses if the entire loan is not used for business-related activities. Credit card interest is not tax-deductible when you incur the interest for personal purchases, but when the interest applies to business purchases, it is tax-deductible.

That said, it's always cheaper to spend only the money you already have and not incur any interest expenses at all. A tax deduction only gives you some of your money back, not all of it, so try to avoid borrowing money. For some businesses, though, borrowing may be the only way to get up and running, to sustain the business through slow periods, or to ramp up for busy periods.

Do you pay premiums for any type of insurance to protect your business, such as fire insurance, credit insurance, car insurance on a business vehicle, or business liability insurance? If so, you can deduct your premiums.

Some people don't like paying insurance premiums because they perceive them as a waste of money if they never have to file a claim. The business insurance tax deduction can help ease that dislike.

If you rent out an office space, you can deduct the amount you pay for rent. You can also deduct amounts paid for any equipment you rent. And if you have to pay a fee to cancel a business lease, that expense is deductible, too.

But you can't deduct rent expenses on any property that you own, even partially. Also, rent must be reasonable in amount. The need for a reasonableness test typically arises when you and the owner are related, but rent is considered reasonable if it is the same amount you would pay to a stranger

The IRS usually requires you to deduct major expenses over time as capital expenses rather than all at once. However, you can deduct up to $5,000 in business startup costs in the first year of active trade or business. Examples of tax-deductible startup costs include market research and travel-related costs for starting your business, scoping out potential business locations, advertising, attorney fees, and accountant fees.

The $5,000 deduction is reduced by the amount your total startup cost exceeds $50,000. If you set up a corporation or LLC for your business, you can deduct up to $5,000 more in organisational costs such as state filing fees and legal fees.

Professional fees to consultants, attorneys, accountants, and the like are also deductible at any time, even if they aren't startup costs. 

Do you pay for ads on Facebook or Google ads, a billboard, a TV commercial, or mailed flyers? The costs you incur to advertise your business are tax-deductible.

You can even deduct the cost of advertising that encourages people to donate to charity while also putting your business' name before the public in the hope of gaining customers. A sign advertising "Holiday Toy Drive sponsored by Robert's Hot Dogs," for example, would be tax-deductible