It’s never been easier to start a small business to call your own. From business websites to e signatures for legal documents, and multiple communication options, small businesses have become extremely efficient and inexpensive to operate.Although expenses have decreased, taxes most certainly have not. However, there are some tax benefits for the small busine...ss owner that can greatly add to your bottom line.
Working out of your home is a great way to launch a small business if you can’t afford an office space right off the bat, and your house can be worth a great deal in tax write-offs.
If you run your business out of your home, get an idea of how big your workspace is relative to your house. The percentage of your home used for business purposes are legitimately deductible, but only if it’s used strictly for your company. It doesn’t matter if you have an office adjacent to where you live or you’re just using a spare room, but using the den while your family isn’t home doesn’t count. Don’t forget to write off the relative percentage of utilities you use in this workspace also. Your internet connection is deductible, and so are any phone bills if you have a line exclusively for work.
The Family Advantage
Though it may cause some friction after hours, hiring family members can save you quite a bit on small business taxes. As long as they hold legitimate positions in a company you fully own, all of their medical costs can be deducted. Regular taxpayers can only write off medical expenses if they exceed 10% of their taxable income. But small-business owners can write off their own non-reimbursed healthcare costs and their immediate family’s as well.
YOU’LL GO FAR
Whether you work at home or in an office, your travel expenses can almost always be deducted from your tax base.
Step on It
Travel expenses are a write-off that many self-employed people forget is deductible. Keep close track of your car’s mileage and gas purchases if you do a lot of travelling from home while you’re on the clock, and then choose one of the options for deducting it. The simplest way is to figure out your total business mileage and then multiply it by the IRS rate for deduction, which you can find on their website. Just make sure that you keep a log of all miles driven for business purposes. If you operate out of your home, the mileage you drive between leaving your house and returning on business travel is also a write-off.
FOR THE RECORD
It can’t be exaggerated how important it is to keep your records in order. This can mean the difference between getting a large check back from the government and a getting hit with a huge tax penalty.
It’s an old tax cliché, but it’s entirely true. Keep a receipt for positively every single business purchase you make. This not only includes the obvious things like equipment or plane tickets but the items that seem insignificant also. Postage fees, office supplies and magazine or journal subscriptions can often be written off. Always consult the IRS’s website before making deductions you’re unsure of, but a surprising amount of minuscule things are eligible and add up quickly.
If your company has grown by leaps and bounds in a short period of time, you might feel overwhelmed with purchase orders, legal documents and other paperwork. It isn’t fun to get audited when your paperwork is not in order. Play it safe and plan on being audited. Consider PDF and e signature equipment and software that will help keep messy paperwork off your desk, out of your filing cabinets (or trash) and into a format that is organized, secure and easy to access. Taking the steps to go paperless now by scanning all your current hard copies into PDF form and signing all business documents with an e signature will save paper, ink, time, money and IRS headaches in the future.
If your business has grown faster than you thought possible, you might want to spend some of it on the company before the year is out. Higher income means belonging to a higher tax bracket, but you can legally keep yourself in a lower one by splurging on some equipment and supplies and writing them off. Just make sure you keep good records and can legitimately claim them as business necessities.