Gannett News Service
Employees and self-employed individuals will find that several business tax breaks have become a bit more valuable on 2000 income tax returns.
| Small-business tax resources
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 Internal Revenue Service
Extensive tax information and tips designed exclusively for large and small-business owners.
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Frequently asked questions about small-business taxes.
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And remember, the filing deadline for sole proprietors is April 16, same as for individuals. There’s an extra day this year because the 15th falls on Sunday. For corporate filers, the deadline is March 15.
Retain at least three years of tax records for the IRS in case of an audit. IRS Publication 583, "Starting a business and keeping records," explains what is needed.
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The Internal Revenue Service mileage rate for business use of cars has gone up. So has the amount of business equipment that can be immediately written off. Transportation workers will get a bigger deduction for out-of-town meal expenses.
And a valuable tax exemption was renewed for the hundreds of thousands of employees who receive financial aid from their employers to take college courses on the side.
Car deductions
For workers who used their car for business last year, the IRS raised the standard mileage rate to 32.5 cents a mile for 2000. That is up from 31 cents for most of 1999.
When writing off business use of a car, taxpayers generally have the option of deducting actual expenses or claiming the IRS standard mileage rate, plus parking and tolls.
Using the IRS mileage allowance is much simpler, but toting up actual expenses may provide a bigger deduction.
"We usually use actual expenses," said Bruce Wertheim, a senior manager in the personal financial planning practice at the accounting firm of KPMG in New York.
Actual expenses include not just gas and oil but depreciation or lease payments, insurance, automobile club memberships, license fees, car washes, repairs, maintenance and more.
Wertheim said most people maintain the kinds of records needed to compute actual expenses. A record of mileage driven must be kept, whether you use the standard mileage rate or actual expenses. Most people using their cars for business are likely to use a credit card to pay for gas purchases. And most other eligible expenses are also likely to be paid by credit card or check.
But there are cases in which the IRS mileage rate will produce a bigger deduction.
As a general rule, the fixed mileage rate is likely to be the more valuable option if you put a lot of business mileage on a car that’s not expensive to maintain or operate, said Jim Seidel, an editor at RIA in New York, an information provider for tax professionals. "If your business mileage is lower, you have a gas-guzzling car or a lot of expensive repairs and maintenance, then you might come out ahead using actual costs," he said.
When you first start to write off a car, it’s important to assess which method is likely to yield the bigger deduction because you can’t always switch from one method to the other.
To use the IRS mileage rate for a car you own, you must choose it for the first year you use the car for business. If you do, you’ll have the option in future years of using the IRS mileage rate or the actual-cost method. If you want to use the IRS mileage rate for a leased car, however, you must use it for the entire lease period.
The boost in the IRS mileage rate will primarily benefit self-employed individuals who use the IRS rate to compute their car-expense deductions.
But the higher mileage rate will also benefit some employees who were reimbursed by their employer for job-related use of their personal car.
Employees who were reimbursed for car expenses at a rate of less than 32.5 cents a mile are eligible to deduct the difference as an employee business expense.
Business equipment
If you’re writing off a computer or other business equipment on your tax return, the simplest and most valuable way to do it is to take advantage of the "first-year expensing" method.
Instead of having to depreciate the equipment’s cost for a period of years, the expensing method allows you to fully write off up to $20,000 of last year’s equipment purchases on your 2000 income tax return. That is up from $19,000 in 1999.
This special depreciation method, which is referred to as "Section 179" on IRS tax forms, was intended to give smaller businesses a simple and fast way to write off business equipment.
Write-offs under the expensing method are generally limited to the amount of taxable income from your business. So if you run an Internet company that earns little money, your equipment write-offs will be equally small.
But there is an exception if you had income from another job. The IRS allows employees with sideline businesses to count salary they earn from their regular job as business income when figuring their limit on expensing deductions for the sideline.
Employee college aid
For workers who received tuition assistance from their employer last year to take college courses, the tax exemption for the financial aid was renewed. The exemption for employer-provided educational assistance had been slated to expire in mid-2000. But Congress extended it through the end of 2001.
The exemption allows employees to receive tax-free up to $5,250 a year in financial aid from their employer.
The exemption applies only to undergraduate studies.
But not all grad students will be stuck paying tax on their tuition assistance. A separate section of the tax code will protect you if the grad-school courses are directly related to your current job. Specifically, the assistance is considered a tax-free "working condition fringe benefit" if the coursework is intended to improve skills in your current job but doesn’t prepare you for a new profession.
Business meals deduction
Business trip meals are normally only 50 percent deductible. But transportation workers get to deduct more.
For 2000, they can write off 60 percent of their out-of-town meal expenses. That is up from 55 percent on 1999 tax returns.
The bigger deduction is available to workers subject to the U.S. Transportation Department’s "hours of service" limits, which restricts the number of hours they can fly or drive before taking a required rest period.
Eligible are airline pilots and crewmembers, interstate truck and bus drivers, railroad engineers and conductors, and merchant mariners.
Out-of-town meal expenses incurred "during or incident to a period of duty subject to the hours-of-service limitations" qualify for the 60-percent deduction.
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