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As a self-employer or founder of a small business, it can be difficult to navigate the waters of the IRS annual exam (i.e. taxes). Though you can and should utilize the services of tax professionals and software, it is always good to have a basic knowledge of your own. Personal taxes can be complicated enough; filing as a business can be downright overwhelming. But if you’re willing to sift through the paperwork and read the fine print, you can save a lot of money in the form of tax deductions. Here are some basics of tax tips on deductions for small businesses.
Many small business owners are afraid to claim “home office” deductions for fear it will bring the auditor a-callin’. Fear of an audit should never keep you from claiming legitimate deductions. Just make sure you keep well-organized records, and that you can prove your deductions are indeed for business expenses and you’ll be fine. Here are some pointers when it comes to home offices.
Up-and-coming businesses need to be up-to-date on their technology, and Uncle Sam does not hinder this. Under Section 179 of the tax code, equipment expenses such as computers, printers, and even company vehicles are tax-deductible, up to a certain amount. Depending on the item, you can deduct the full cost on the year of purchase, or split it between several years. You can find more information about the distinction between current and capital expenses here. Business-related software also qualifies under section 179. So don’t be afraid to get the technology you need to perform necessary business tasks. Just be aware of the amount you can deduct under section 179 because it changes yearly. Also, if you only have one car, you can’t justify that as purely a business vehicle, so don’t try to use the fact you have a business to pad your personal belongings. If you’re going to purchase a work vehicle, make sure it is only used for work.
Subscriptions to business-related websites and magazines are fully deductible. Combined with the conference deductions (discussed below), there is no reason not to stay informed in your field.
Owning a small businesses that needs to travel is something many people dream of, and small business owners often get to realize that dream. Since travel can be necessary for business success and expansion, many of the expenses are completely tax deductible. Our tax tip on travel is to write off expenses like airfare, hotel fees, car rental and mileage, and travel expenses like laundry costs. Food is only deductible up to 50%, probably because the government figures you would have to eat whether you were traveling or not. Remember these points when deducting business travel expenses:
As always with finances, especially taxes, it’s important to keep your receipts and details about the reason for purchases. While doing this for every purchase may seem over-the-top, it’s easy once you get into the habit of it. It will also save you a lot of grief if you get audited, and it will help you keep peace of mind that your finances aren’t going to get your business in trouble. The last thing you need is a pile of debt to the IRS. The more organized your finances are, the more you can focus on making your business successful. The cost of running and maintaining a business is high, but many of those costs can be reduced by filing your taxes knowledgeably. It’s never profitable to leave money on the table. Do your research, take the time to do your taxes correctly and completely, and put the money you save back into your business.