Top 5 Ways to Reduce Your Business Taxes
photo credit: managementconsultingpro.com
According to tax expert John Beidle, navigating your small business taxes is a lot like playing good football. It’s not enough to have a stellar offensive line; your defensive backs have to be just as good, too. Maybe better.
“Financial offense is making more; financial defense is spending less. Taxes are probably your biggest single expense. So it makes sense to focus your financial defense where you spend the most.”
In an unpredictable economy, you might not be able to count on an offensive strategy that’s based on increasing your income. But you can always reduce your business taxes by beefing up your “D.”
1. Obsess over your receipts
If you’re not keeping track of it, how could you possibly write it off? With Shoeboxed’s receipt scanning app for smartphones, it’s easier than ever to keep every single receipt filed and organized. Every time you scan a receipt or snap a picture of one, you’re putting up to 50% of the total back in your pocket come tax time. Even if you’re unsure of whether an expense can be written off of your business taxes, create a digital record anyway. It won’t take up any space in your wallet, and you’ll be able to easily locate it when the time comes to compare notes with your accountant or tax professional.
2. Deduct your health insurance
If you’re self-employed, the payments you make each month for health insurance can be subtracted from your business taxes, significantly lowering the amount you owe. Since health insurance is so flippin’ expensive, the amount can add up quickly, and payments made for your spouse and children can be included as well. However, make sure you qualify for this deduction. People who can’t claim health insurance as a business write off include those who:
- Are self-employed but still have a full time job that offers insurance, or
- Have a spouse whose employer offers health insurance
3. Mileage, Shmileage
Okay, so this one is kind of a pain in the tuckus. However, if you’re seriously ready to save some cash on your business taxes, it’s totally worth the extra effort. Just as you’re diligently tracking your expenses with an eReceipt app, you also need to track your mileage and car expenses. Most people take the standard mileage deduction, and lose a ton of money by doing so.
Consider switching to tracking your actual expenses when it comes to your car, including exact miles driven, gas, and upkeep. You can even deduct the amount the car depreciates in value throughout the year! Which can be quite a bit, especially if your car is new. Keep in mind that you have to be super diligent with this, and only deduct those expenses that are business related (so no, the spring break road trip doesn’t count, even if your co-worker joined you).
4. Keep it in the family
Did you know that the IRS rewards you for hiring your own kids? And that, title of this section aside, you can actually hiring other people’s kids to reduce your business taxes? Your mini employees can make up to $5,700 a year, totally tax free, and you can write off the entire amount as a business expense. You will need to go through the motions, however, just as you would with any employee (W2, company payroll, the whole nine yards).
5. As if you needed another reason…
…to work from home. Your home office can provide awesome deductions on your business taxes as long as you a) use it regularly and exclusively for running your business, and b) don’t have another office somewhere else that you use for the same purpose (aka no double dipping). If both of those things are the case, you’re free to deduct a portion of typical expenses incurred while owning or renting a home, like insurance, mortgage payments, rent, utilities, sewer and trash services, and even that fancy security system you had installed. If you happen to own your home, you can also deduct the amount the home depreciates in value throughout the year.
Going into business for yourself doesn’t have to mean spending a fortune on business taxes. Armed with these five tips, you may just end up – get this – making money this year.