As a small business owner, you may find tax time overwhelming. Believe it or not, preparing for your quarterly tax bill is just as important to your business as marketing. Did you know that after your first year in business, you are expected to pay quarterly taxes to the IRS? Many small business owners aren’t aware of this fact. When it comes to business tax, its best to consult with an accountant. But, before you have this consultation, we have some tax tips for you.
One of the biggest fears of small business owners is an audit from the IRS. People have been shying away from claiming home office deductions. If you have a designated office space in your home for working, you are able to take a tax deduction for it. That is, if you work 100% from this home office. If you work only a portion of time from this office, you will want to consult your accountant before claiming it though. This space will need to contain a designated work computer. Its best that you also have a computer for your personal needs. Also, be sure to have a desk and chair in this area. You will want to have a measurement of this office for tax purposes.
Any technology that you need to purchase for your business is a legitimate tax deduction. This includes software, computers, printers, ink, paper or anything else that you use for business. Be sure to keep a good record of these purchases. We recommend keeping a file folder just for receipts from these transactions. Subscriptions for business related websites and magazines also fit into this category. Again, keep all receipts of these for your tax filing.
Depending on the type of business you own, you may have to travel for work. Travel can be crucial for your business. Some examples of travel related businesses expenses are trade shows, client meetings, expansion meetings or warehouse tours. Expenses such as airfare, hotels, car rental and mileage are the biggest tax deductions. Also, smaller items such as laundry expenses or meals can add up. Remember that for your meals, only 50% of the price is deductible. If you are entertaining a client, note the client, date, reason for meal, and the client’s business name on the receipt that you save. This can make it easier to organize your receipts during tax time. If you do decide to bring your family on your business trip, you can not deduct any of their expenses from your taxes. This would all be personal expenses. You may have some downtime during your trip to visit an amusement park to take in a movie. Again, these are not business expenses.
Everyone knows having a retirement fund is important. But, did you know that it also has tax benefits too? Money from your paycheck goes directly to your IRA. You end up paying the tax on it when you retire. Surprisingly, this lowers your taxable income. This means you will pay less in taxes because your income is lower. This is really important for businesses that are in too high of a tax bracket. If your business makes more than expected in a tax year, you are bumped up to the next tax bracket. You could end up owing a lot more taxes than you expected or budgeted for. A way to offset this is to contribute to your retirement accounts. It will lower your taxable income and put you back into the tax bracket that you were planning for.