If you are a self-employed entrepreneur running a small business, you know how frustrating the annual tax filing process can be. There are qualified tax and accounting professionals to make your job easier, but it always helps if you have some basic tax knowledge.
Here are a few tips on how small businesses can save on taxes via appropriate deductions. Keep these in mind so you can hold onto the necessary purchase receipts.
If you work out of your home, as long as you have a distinct demarcation between your workspace and the rest of the living space, you can make legitimate deductions. Make sure that your working space is not used for any other purpose. Keep a separate computer for business use, so you can include that it in the deductions. The percentage of expenses that you can deduct is calculated by measuring the area of the workspace and dividing by the actual square footage of the house. You can calculate that percentage of mortgage, rent, taxes, maintenance, and utilities of the house, to make the deduction.
If you make frequent travels for business reasons, you will be happy to know that many travel related expenses are tax deductible. You can write off hotel fees, airfare, car rental, and even laundry expenses. Food expenses are deductible only up to 50%. If you take your family with you, remember that you cannot deduct the expenses that are incurred on their behalf. Client lunches can be deducted up to 50%. Conference fees can also be deducted if it is directly applicable to and useful for the business. Fan conventions, amusement parks, or tourist attraction expenses do not qualify.
Under section 179, business expenses such as computers and printers are tax deductible. Even company vehicles can be included for deduction. Depending on what the item is, the deduction can be made for just the year of purchase, or spread across several years. So don’t hesitate to buy the appropriate technological gadgets to help your business because you can include the cost of the devices in your tax deductions. You can even deduct subscriptions to websites and magazines related to the business. Just make sure that these items are used only for work and not for personal use.
It is financially prudent to keep detailed receipts for all your purchases, and this is even more important when it comes to filing taxes. It may seem like a bit of a hassle to keep the purchase receipt for every little thing, but this habit can save you a lot of trouble in case you ever get audited. The last thing that you want is the IRS to be on your back. When your finances are well organised, you have no reason to worry about whether your tax filing is appropriate.
Running a business can be expensive, but you can save a lot of money by filing your taxes completely and appropriately. Invest some time into your tax planning, and you can save a good chunk of money to put back into your business.