it is often found that many small businesses end up overpaying taxes. This can be because they are ignorant about many deductions. Tax deductions are legal and allowed by tax laws. You do not break any laws as per the IRS when you claim deductions.
Here are some tax tips for every small business owner:
- Home Office: Do not hesitate to claim deductions for home office for fear of an audit. Ensure that your record keeping is impeccable and that you can show that the home office is indeed being used for work. Having a clearly demarcated area for office makes it easier. Remember you can claim deductions on rent, mortgage and utilities as well generally in the proportion in which the space at home is being utilized for home office.
- Business-related purchases: Technology purchases both software and hardware used for the purpose of office can be claimed as deductible. Computers, printers, office stationery, cars for office use, software, subscription to business related magazines, conference expenses, travel costs, food costs related to business are all deductible. If you are taking a client out for a meal, the costs can only be deducted to the extent of 50%. Just ensure that you can clearly show that all these are used for business purposes. Retain and file receipts for business related expenses and preferably write on the back of the receipts the nature of the expenses that can help in accounting later.
- Employee related: A small business owner can bring down tax liabilities by offering fringe benefits like child-care assistance, health and vision insurance instead of salary raises that invite higher taxes.
- Maintain separate expenses: It is very important for small business owners to maintain separate checking accounts and credit cards for personal and business expenses. This brings about the discipline of keeping the spends separate and also in keeping track of all business expenses. Also remember to store receipts carefully.
- Capital Expenses: All new businesses can deduct up to $5,000 in the first year of their business as capital expenses for launching the business.
A good business practice is to write down the reasons for a purchase or an expense. This really comes in handy to justify an expense in your credit card or checking account. Keep a track of all these expenses all through the year. Do not leave the bookkeeping for the end of financial year. It will result in confusion and may also make you leave out crucial deductibles. The key is in knowing what is deductible and in making sure that you do the necessary paperwork to claim it hassle free. Organize your finances and file your taxes on time.