Tax Tips for Small Business Owners
HOME (OFFICE) FIELD ADVANTAGE
Working from home is a great way to start a business if you can’t afford an office right away, and your house can be valuable in tax write-offs.
If you run your business out of your home, get an idea of how big your workspace is relative to your house. The percentage of your home used for business purposes are legitimately deductible, but only if it’s used strictly for your company. It doesn’t matter if you have an office adjacent to where you live or you’re just using a spare room, but using the den while your family isn’t home doesn’t count. Don’t forget to write off the relative percentage of utilities you use in this workspace also. Your internet connection and any phone bills are deductible if used exclusively for work.
ALL IN THE FAMILY
Though it may cause some friction after hours, hiring family members can save you quite a bit on small business taxes. As long as they hold legitimate positions in a company you fully own, all of their medical costs can be deducted. Regular taxpayers can only write off medical expenses if they exceed 10% of their taxable income. But small-business owners can write off their own non-reimbursed healthcare costs and their immediate family’s as well.
YOU'RE REALLY GOING PLACES
Whether you work at home or in an office, your travel expenses can almost always be deducted from your tax base.
Travel expenses are a write-off that self-employed people often forget is deductible. Keeping a close count of your car’s mileage and gas purchases if you do a lot of on the clock travelling, and then you have options for deducting it. The simplest way is to figure out your total business mileage and then multiply it by the IRS rate for deduction, which you can find on their website. Just make sure that you keep a log of all miles driven for business purposes. If you operate out of your home, the mileage you drive between leaving your house and returning on business travel is also deductible.
FOR THE RECORD
It can’t be exaggerated how important it is critical to keep your records in order. This can mean the difference between getting a large check back from the government and a getting hit with a huge tax penalty.
It’s an old cliché, but it’s true. Keep a receipt for positively every single business purchase you make. This not only includes the obvious things like equipment or plane tickets but the items that seem insignificant also. Postage fees, office supplies and magazine or journal subscriptions can often be written off. Always consult the IRS’s website before making deductions you’re unsure of, but a surprising amount of minuscule things are eligible and add up quickly.
STREAMLINE YOUR RECORDKEEPING
If your company has grown by leaps and bounds in a short period of time, you might feel overwhelmed with purchase orders, legal documents and other paperwork. It isn’t fun to get audited when your paperwork is not in order. Play it safe and plan on being audited. Consider PDF and e signature equipment and software that will help keep messy paperwork off your desk, out of your filing cabinets (or trash) and into a format that is organized, secure and easy to access. Taking the steps to go paperless now by scanning all your current hard copies into PDF form and signing all business documents with an e signature will save paper, ink, time, money and IRS headaches in the future.
A YEAR-END BUYING SPREE?
If your business has experienced a quick, exponential period of growth, you may want to spend some of it on the company before the year-end. Higher income means a higher tax bracket, but keep yourself in a lower one by expending excess earnings on equipment and supplies and write them off as deductions. Just be sure you can legitimately claim them as necessities for your business.
Need More Tax Tips? Check Eric's Blog