Column by Barbara Weltman

You work hard for your money. So why hand it over to the Internal Revenue Service when you don't need to?

Many entrepreneurs overlook perfectly justifiable -- and legal -- tax deductions simply because they are unaware of them. So before the 2006 tax season begins, take the time to review the deductions to which you are fully entitled. To help you get started, here are the top five tax deductions that most small business owners often overlook:

Equipment expensing
Buying computers, telephone systems, furniture or other equipment instead of leasing it entitles a business to write-off their cost, usually over a fixed number of years using depreciation. However, small businesses that are profitable can benefit from a so-called Sec. 179 deduction. This means a business can deduct up to $108,000 of cost for a single piece of equipment or in various items as long as equipment is placed in service before the end of the year. This deduction limit will rise to $112,000 in 2007.

The deduction applies whether the item is new or pre-owned, as long as it is "new" to the company claiming the deduction. In fact, the purchase can even be financed in whole or in part, giving the company a cash flow advantage for making the purchase.

This deduction phases out dollar for dollar when a company's equipment purchases for the year exceed $430,000 (or $450,000 in 2007), so larger corporations may be precluded from taking this write-off.

Commercial buildings that go green
New for 2006 is a deduction for commercial building owners whose buildings meet certain energy standards. The deduction is as much as $1.80 per square foot for buildings that achieve a 50 percent energy savings target.

Before claiming the deduction, the owner must obtain a certification that the required energy savings will be achieved. For details on the certification process and other aspects of the deduction, visit the Commercial Building Tax Deduction Coalition.

Domestic production activities
This deduction enables businesses to lop off 3 percent of their net profits from domestic production activities from their income -- resulting in significant tax savings for owners without spending a single additional penny to receive the write-off.

To qualify, a business must produce something within the United States --the definition of production is broad enough to encompass not only traditional manufacturing, but also a myriad of other activities, including: selling, leasing, or licensing items manufactured, produced, grown, or extracted in the country; construction and substantial renovation of residential and commercial buildings, as well as engineering and architectural services for American construction projects; software development; and the selling, leasing or licensing of films produced in the U.S .

This deduction applies to companies both small and large. The only catch is the deduction cannot exceed 50 percent of a company's W-2 wages. To determine whether a company qualifies for this deduction and how much to claim, work with a knowledgeable tax advisor.

Accelerated depreciation for building components.
The cost of commercial buildings (exclusive of land) usually can be depreciated over 39 years using the straight line method (i.e., ratable depreciation). However, parts of the building that are not viewed as structurally integral can be separately depreciated over much shorter periods (typically five or seven years) using an accelerated depreciation method. The more rapid the write-off, the greater the up-front savings to the building owner due to the time value of money.

To justify accelerated depreciation of certain building parts, such as special wiring or special flooring, obtain a "cost segregation study" -- an engineering-like report that breaks out these components. To see whether a study meets IRS standards, view the IRS audit techniques guide for cost segregation studies. To find Audit Technique Guides, click on the "Businesses" tab at the IRS Web site.

Vehicle use
The tax rules for claiming deductions with respect to cars, trucks and vans used for business can be confusing. Different limitations apply to vehicles that are owned versus those that are leased. And the rules are further complicated by vehicle ownership -- whether the car is owned by the business or the business owner. Here are some key points:

Business use of an owner's personal car can be deducted using the IRS standard mileage rate (44.5¢ per mile in 2006) or the actual expenses related to this use. Dollar limits cap annual depreciation write-offs. Higher dollar limits apply to light trucks and vans.

SUVs weighing more than 6,000 pounds are not subject to the usual dollar limits on depreciation. The top limit on the Sec. 179 deduction for these vehicles is $25,000; additional cost can be depreciated under usual depreciation rules.

Light trucks and vans that are not suitable to personal driving (e.g., they are outfitted with special shelving and/or has the company's sign on the side of the vehicle) are not subject to any dollar limits on expensing or depreciation.

Starting this year, a business may qualify for a tax credit for buying a hybrid vehicle or other alternative fuel vehicle.