While running a small business and being your own boss can be satisfying indeed, it can also be tricky come tax time. To ensure that you keep more money in your pocket than the government’s, check out the following tax tips:
- Deduct everything. The IRS has given dozens of concessions to small business owners, but many don’t take full advantage of all that they can claim. For instance, if there’s a space in your home dedicated exclusively for business, you can deduct some of your housing costs. For a 2019 return, you can claim $5 per sq. ft. of your office up to 300 sq. ft. Additionally, you can also deduct monthly Internet charges, electricity, gas and phone (cell or land line) expenses.
Mileage is often another overlooked expense. You can deduct the miles you drive for business, such as client meetings or picking up supplies. Every trip counts, even the short ones, so it pays to keep track of your mileage. Small businesses are allotted 56 cents for each mile travelled.
Other deductions you might be eligible for as a small business owner include travel expenses like tolls and parking, 50 percent of meals with clients, as well as supplies, and furniture for your office.
- Use the right business structure. There are various ways to structure a small business, and how you do so will dictate how much or how little you pay in taxes. Most small businesses choose to operate as a sole proprietor, limited liability company, or corporation. A tax specialist or accountant can advise you as to which structure is best for your business, but as a rule of thumb, if your business generates more than $50,000 in profit, you save taxes by incorporating.
- File on time. Many small business owners end up paying more than is necessary because they file late, resulting in the IRS charging interest, late fees, and penalty fees. Missing deadlines in any circumstance is inexcusable (be it for a customer or a government agency) and is likely due to an owner being disorganized and more focused on their customers than their books.
To this end, many owners are using technology to their advantage and using cloud-based systems like FreshBooks (www.freshbooks.com), Wave (www.waveapps.com), or QuickBooks Self Employed (www.quickbooks.com) which makes it easy to stay on top of accounting tasks like invoicing and expense tracking. Such systems also allow the owner to send their accountant all the reports and information they need with the click of a mouse. Hampton Roads Accounting supports both FreshBooks, Wave, and QuickBooks as recordskeeping tools for our clients.