Tax Tips for Business Owners

Written by Manager on February 20th, 2018. Posted in Blog

 

Tax season is upon us, and when you’re a business owner, you may feel like all odds are against you this time of year. You’ve got complicated forms to fill out, and missing receipts to track down. Yet, it is very common to overlook a handful of opportunities for small businesses to cut down tax bills. What will help you most is paying attention to IRS rules, remaining patient and being precise.

Yes, you pay tax on your business profits. But the good news is you can potentially reduce your taxable income by taking all the deductions you’re entitled to as business expenses.You should track every business expense and comb over them with your CPA at the end of the year to ensure you only take legitimate deductions, both to minimize your risk of audit and to have the documentation in place in case the IRS ever comes knocking.

Self-employment tax. Self-employment taxes are taxes paid to the Social Security Administration for Social Security and Medicare eligibility. If you’re an employee, you share the cost with your employer, with each of you paying a share of the FICA tax. If you’re self-employed, you pay both portions. Fortunately, you can deduct the portion of your self-employment tax equivalent to what an employer would pay on the front page of your tax return on line 27 as a deduction, or adjustment to income.

The Small Business Administration reported that 52 percent of all businesses in the U.S. are run from home. Still, many owners may be afraid to take a home office deduction, thinking it can be an audit red flag. This may have been true in the past, but there’s no evidence to show that it continues to be so. Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.

Car & truck-related expenses. You can deduct the cost of expenses related to a car or truck, including lease payments, so long as you use your vehicle exclusively for business. If you split the use of the vehicle for personal and business purposes, you can only deduct the portion attributable to business (for only $5/month the MILE IQ app allows you to easily log your trips as either business or personal).

If you ever find yourself in doubt about the deductibility of business expenses, ask yourself these two questions:

Is this for business use?

Is this expense necessary, helpful, and appropriate for your business?

The answer to both of those questions should be “yes” to claim an expense as a business-related tax deduction.

Knowing which expenses to claim as deductions are extremely important. The above listed are just a few examples.  Discuss your situation with your CPA or a tax advisor to make sure you have done all that is required to qualify for a specific deduction. For more information on issues impacting small businesses, check out Lori Boone from Accountants on the Go at The Perfect Small office in Mason!

 

https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses