The more tax deductions your business can legitimately take advantage of, the lower your taxable profit will be. The tax code provisions that govern those deductions can also provide some personal benefits to you: a nice car to drive at a small cost, or a combination business trip and vacation. You just have to be careful and follow the IRS rules on just what is -- and isn't -- deductible.

When you are adding up your business's expenses at the end of the year, don't overlook these important business tax deductions.

1. Auto Expenses

If you use your car for business, or your business owns its own vehicle, you can deduct some of the costs of keeping it on the road. There are two methods of claiming expenses:

Actual expense method - You keep track of and deduct all of your actual business-related expenses.

Standard mileage rate method - You deduct the standard mileage rate for each mile driven, plus all business-related tolls and parking fees. In 2011, the standard mileage rate is 51 cents per business mile driven from Jan 1 to June 30 and 55.5 cents per mile from July 1 to Dec 31. This is an increase from the 50 cents per mile rate in effect for 2010.

As a rule, if you use a newer car primarily for business, the actual expense method provides a larger deduction at tax time. If you use the actual expense method, you are also entitled to deduct depreciation on the vehicle. To qualify for the standard mileage rate, you must use it the first year you use a car for your business activity. Be careful because you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

If your auto is used for both business and pleasure, only the business portion produces a tax deduction. That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year. Certainly, if you own just one car or truck, no IRS auditor will let you get away with claiming that 100% of its use is related to your business.

2. Expenses of Starting a New Business

Once you're running a business, expenses such as advertising, utilities, office supplies, and repairs can be deducted as current business expenses -- but not before you open your doors for business. The costs of getting a business started are capital expenses, and you may deduct $5,000 ($10,000 in 2010) the first year you're in business; any remainder must be deducted in equal amounts over the next 15 years.

If you expect your business to make a profit immediately, you may be able to work around this rule by delaying paying some bills until after you're in business, or by doing a small amount of business just to officially start. However, if, like many businesses, you will suffer losses during the first few years of operation, you might be better off taking the deduction over five years, so you'll have some profits to offset in later years.

3. Books, Periodicals, Legal and Professional Fees

Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business. Fees that you pay to lawyers, tax professionals, or consultants generally can be deducted in the year incurred. However, if the work clearly relates to future years, they must be deducted over the life of the benefit you get from the lawyer or other professional.

4. Bad Debts

If someone stiffs your business, the bad debt may or may not be deductible -- it depends on the kind of product your business sells. If your business sells a physical product, you can deduct the cost of goods that you sell but aren't paid for. If, however, your business provides services, no deduction is allowed for time you devoted to a client or customer who doesn't pay.

5. Business Entertaining

If you pick up the tab for entertaining present or prospective customers, you may deduct 50% of the cost if it is either (a) directly related to the business and business is discussed at the event -- for example, a catered meeting at your office; or (b) associated with the business, and the entertainment takes place immediately before or after a business discussion. On the receipt or bill, always make a note of the specific business purpose -- for example, "Lunch with Joyce Slater of Ace Manufacturing Co. to discuss widget contract."

6. Travel

When you travel for business, you can deduct your expenses, including the cost of plane fare, the costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, telephone calls, faxes, and tips. If you combine a business and pleasure trip, it's still okay to take the deduction, as long as business is the primary purpose of the trip. However, if you take your family along, you can deduct only your own expenses.

7. Interest Expenses

If you use commercial funding to finance business purchases, the interest and carrying charges are fully tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business. Be sure to keep good records demonstrating that the money was used for your business.

As with everything else IRS related, the rules for deductions are not always black and white.  Consult with your tax professional or call   Performance Advisors to help you compute maximum deductions for your 2011 taxes. Contact Performance Advisors today at 602-579-5725 or email Performance Advisors today for ideas and assistance.