Small Business Tax Tips That Just Make Sense
Did you know you may be able to deduct part of the cost of that new water heater you installed in your house? How about that class you took that taught you how to use social media to promote your business? Ever think the new treadmill you put in your basement could serve as a tax deduction?
Fact is, small business owners — particularly sole proprietors and partners — usually are unaware of all the potential small business tax tips they’re missing. In 2014, the most recent year when statistics are available, the IRS reported that about 24.6 million tax returns listed income from non-farm related sole proprietorships. That’s 2.3 percent higher than in 2013.
Taking It to the Bank
Of the more than $1.78 billion earned by those solo entrepreneurs, only a little more than $9 million was deducted for home offices. And that’s 1.3 percent lower than in 2013. That’s just downright crazy!
The point of the matter is: if you aren’t taking all the deductions you legally can, you’re giving Uncle Sam extra money to take to his bank. So if you’re tired of letting your hard-earned dollars slip through your fingers just because you don’t know the most recent tax codes or don’t think you’re allowed to follow too many small business tax tips, then grab a pencil and get out your calculator — you very well may get a bigger return or a lower tax bill if you pay attention to the following small business tax tips.
DIY or DIFY
There are plenty of easy-to-use small business tax tips and tax programs available so that you can do it yourself (DIY). On the other hand, if you have an astute accountant who also provides business advice, ask him to do it for you (DIFY). Either way, it pays for you to know your rights and know how to take advantage of those rights. For example:
- The Home Office: This is one of those small business tax tips that baffles many entrepreneurs, yet it’s one that’s easily overcome. If you have an office dedicated to work, simply find out what percentage of the square footage of your whole house it takes up. Then deduct that percentage of every expense — from home improvements and utilities to maintenance, rent or mortgage, and insurance payments you made.
- Make Space: If you don’t have a dedicated room, then invest in a simple accordion room divider and make a separate space dedicated to work. In addition to creating a legally deductible office, you’ll cut down on the distractions while you conduct business.
- Start Up Right: Long before you even crack a book or take in your first buck, you can be earning tax deductions. All the effort, money and advice you pay for to start your business are work products that you can deduct.
- Pay Yourself: Many small business owners and sole practitioners don’t get much of a paycheck for the first year or two. But that doesn’t mean you can’t be paying yourself in perks and necessities, such as a retirement account. Open a SEP IRA for tax deductions and retirement savings.
- Stay Healthy: When you work for yourself — whether as a sole practitioner, partner or owner of an S Corp with more than two percent equity — you can deduct your health insurance premiums off your personal 1040 tax returns.
- Pay Me Later: It may be too late this year, but consider sending invoices out on December 31 to clients. They can take the cost of your services off your taxes, but you won’t have to report the income until the following year, if they wait at least a day to pay you.
- Take Heed: If your heart doctor told you to get an indoor exercise bike because the stress from your work is giving you high blood pressure, you may be allowed to deduct the cost as a medical expense if you meet the minimum required in other medical costs.
- Time Well Spent: Mileage adds up. Keep an electronic or old-school log of every mile you drive for business. And if almost every trip you take outside the house has a work-related component — from meeting a client for coffee to picking up extra printer paper — then that trip counts.
- Learn More: Self-improvement, professional development and skills training are all deductible on your taxes. And that includes books, money spent on meals, rooms, mileage and any other related expenses. So, as an example, if you want to do your own taxes next year, take a QuickBooks course and deduct the costs.
- Document, Document, Document: If there’s only one of these small business tax tips that you take out of this blog, we bet it will be this one. Save every receipt, write down the purpose of the receipt, who you were with, why you spent the money and what you were doing it for. Many small business owners worry about getting audited, but when you cover your butt with receipts (figuratively speaking), those concerns are declawed. And as the budgets for the IRS keep getting cut, your chances of undergoing an audit as a small business get lower every year. In 2014, only 0.3 percent of small business owners reporting less than $200,000 income were audited, according to the IRS itself.