Record as you go.
It’s essential to keep a log of your expenses and potential deductions throughout the year. You can deduct your legitimate business costs from your business income.
Tracking them as they happen ensures not only that you have an accurate count of what they are, but also that you’ll have less trouble pulling them together when tax time co...mes.
Take your deductions.
Are you aware of all the deductions that businesses are legally allowed? If not, you may be missing out. Some common deductions for small business owners include entertainment, travel, meals, capital assets, home office, and health insurance. If you are going to claim travel miles, meals, and entertainment deductions, you must keep adequate records including receipts and other documentary evidence.
Planning to enhance or upgrade your equipment? You can deduct up to $500,000 in equipment purchases as long as the business spends $2 million or less for equipment for the year. The cost of repairs may also be deductible.
If you’re self-employed, you may also qualify to deduct moving expenses if you are moving due to a change in your job or business location. If you want to learn more about the deductions for which you qualify, be sure to contact David M.Green Bookkeeping and Tax Service who is a Enrolled Agent and up to date on all the latest tax law changes.
Know the red flags.
You should claim all deductions to which you’re entitled. However, there are certain steps that can raise a red flag at the IRS, so it’s best to be aware of them so that you can either avoid them or be prepared for any possible questions down the road.
For one thing, if your business is actually considered a hobby by the IRS, allowable deductions cannot exceed the gross receipts for the activity. Profitability is one deciding factor in making that determination. If your business does not make a profit in at least three of the last five tax years, it will be considered a hobby.
Home office deduction
Taking the home office deduction can also draw IRS attention. Keep in mind that the office must be used regularly and exclusively for conducting business. If you have a qualifying home office, you can deduct related expenses for that portion of your home, including real estate taxes, mortgage interest, utilities and insurance.
Here’s a costly small business mistake: Using the payroll taxes that are withheld from employees to pay for business operations instead of sending them on to the Internal Revenue Service. If you don’t submit those taxes to the Service, you could be subject to criminal and civil sanctions including penalties and fines.
Another big stumbling block for small businesses: improperly classifying an employee as an independent contractor may result in to paying penalties and back payroll taxes.
Take the credits you are due.
In addition to deductions, there are many credits that can whittle down your tax bill if you qualify for them. One example is the small business health care tax credit, which can currently be up to 35%. There’s also a tax credit for business owners who hired qualified, unemployed veterans who began work after November 22, 2011, but before January 1, 2014.