This year, it’s crucial to
#1. Don’t Mess With the IRS
It bears repeating. Do not try to cheat the IRS. Any deductions you take should ultimately be reviewed with your accountant. But, that doesn’t mean you should be afraid to take a deduction that you’re genuinely eligible for. Take the deductions that are legal, and you’ll avoid cheating yourself and the IRS. Keep your small business financials clean and legal, and you can legitimately deduct many of your expenses.
#2. Tax Deductions on a Home Office
This is a big point of contention among many small business owners. If you have a home office, you can deduct it. Many businesses fail to take this deduction out of fear that the IRS will visit their home. Provided that the space you use is dedicated to business use, you’re going to be fine taking this deduction. Make sure that the space is not used for any other purpose. Don’t use a computer that your kids use as well.
The same goes for printers, scanners, paper and other items. Treat it as a business inside your home, and don’t use it for any non-business related purpose. Make sure you keep good business statements, and include the cost of your home office on your tax return.
#3. Getting More Out of Your Furniture
Office furniture can be deducted in two main ways. You can choose to deduct the entire purchase value of the furniture during the year you purchased it, or you use depreciation to deduct it over the course of several years. The second option is good if you don’t need to take a lot of deductions this year. It can also help make future years more profitable, but you need to use the right tax table. You can’t simply divide the purchase into seven equal amounts and deduct the same amount each year.
#4. Reducing the Expensive of Office Supplies
If you purchase a large number of business supplies, make sure you keep your receipts. You can deduct these supplies each year. Over time, the cost of paper, pens, ink, toner and other expenses can add up. As long as you keep the receipt and use the supplies for business-use only, you can safely deduct these necessities without fearing the IRS. This is a good way to offset your taxable business income.
#5. Electronic Equipment Deductions
If you have an iPhone that you use for home and business, you should probably avoid taking a deduction. However, if you have a business-only device, you can deduct it using either small business depreciation formulas, or you can deduct the full cost of the device during the first year. It works in the same way as furniture, and you can safely deduct computers, fax machines, photocopiers and scanners as well.
By deducting these expenditures, you can save a little bit of money and reduce your overall tax burden to the IRS. Just make sure you keep your receipts.
#6. Getting a Break On Your Mileage
For those who drive a vehicle to work, it’s possible to get a break on your mileage. You need to keep detailed logs of your mileage, any gas purchases made, tolls, parking costs and the reason for your trip. Provided you keep a detailed log, you can safely deduct the cost of your trips.
There are a few ways to do this. You can calculate your deduction for the year, and use the current formula provided by the IRS. Alternatively, you can compare your business use to your personal driving use and deduct a portion of your auto expenses. Don’t include the drive to and from your home. You can also get a good tax deduction from buying a car that you use in your business.
#7. The Truth about Travel, Entertainment and Meals
You might as well book heavy if you expect to owe a lot of taxes. Your entire hotel cost is 100 percent deductible, according to the IRS. Deduct the cost of tipping, dry cleaning, rental cars and everything else while you’re on the road for a business trip. However, your meals and entertainment are only covered up to 50 percent. The IRS figures, you’re going to eat anyway, so it’s not right for you to get a full deduction on your meals.
#8. The Cost of Gifts
If you’ve ever been stingy about giving gifts, now is the time to stop. The gifts you provide your clients are 100 percent tax deductible. This means that you can give away, and still benefit at the end of the year. Just make sure the gifts are reasonable and in-line with the type of business you conduct. Giving a Ferrari to a client that spends $1,000 a year is going to raise some serious red flags with the IRS, and you’re not going to get away with that. In fact, your gifts are limited to $25 per person in a single calendar year.
#9. Put Your Kids to Work
We’re talking about legal child labor here. If you operate as a sole proprietor or partnership where you and your spouse are the only partners, you can hire your children to work for you. They must be 17 years of age or younger, but the deduction helps your business and it gives them valuable on-the-job training. This doesn’t apply to businesses that are considered corporations. You also don’t have to pay any Social Security tax when you hire your own children.
#10. Insurance Premiums
If you’re self-employed and you pay your own insurance premiums, you’re eligible to deduct 100 percent of the premium. The deduction can’t be more than your net profit, and it generally only applies to sole proprietors. It also doesn’t apply when you are eligible to receive health care coverage from your spouse’s medical plan or your company. This deduction will only work for people who have no other options and have to pay the premium on their own.
With so many ways to save on your taxes, it’s important to keep track of all your expenses and receipts. Good documentation will make your taxes go much more smoothly. Start preparing now to complete your taxes for this year, and create good habits so that next year’s taxes will go even more smoothly. If in doubt, save the receipt and put it in a special file for your financial analysis review with your accountant at the end of the tax year.
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