Taxes are the only thing that comes even remotely close to the stress of running a successful business. Many business owners wait until the very last minute to prepare for taxes, but that’s when you get hit with unexpected penalties or unqualified deductions.
9 Ways to Save Big on Taxes
In this article, you will learn 9 ways to save big on one of the most stress-inducing parts of running your own business:
1. Separate personal from the business- Make sure that your business credit and checking account is separate from your personal banking account. This will make sure that if you happen to ever be called for an audit, you will have the necessary documents to support your business expenses.
2. Use a payroll software or service– Many companies pay heavy IRS fines for not correctly handling employee payroll tax. This is because a large chunk of businesses that have employees, manage their own taxes the old school way- using spreadsheets. There are a lot of software packages and service providers that can handle this work for you, much more accurately.
3. Use accounting software– Quickbooks is software that millions of businesses use to track their expenses and revenue efficiently. You or your bookkeeper can input your revenue and expenses into the platform and quickly generate a financial statement, which you can then send to your CPA.
4. Deduct car expenses– If you use your car for business purposes, you may be qualified to deduct car expenses. To figure out your deduction, multiply your total miles driven for business by the mileage rate for the tax year.
5. Hire independent contractors– Hiring employees means giving them a paycheck, handling their taxes, and also offering benefits like insurance and other perks. It can be too much for a small business or a start-up. This is why hiring independent contractors might be a better choice for you. You won’t have to pay benefits either. Just make sure to have them fill out a W-9 so that at the end of the year, you can send them a 1099 tax form.
6. Donate excess or used inventory– If you have a physical business that’s flooded with the equipment you have no use for, don’t store it away or dump it. Instead, donate it. You can get it deducted during tax season. Any sort of donation by your company like property, money or equipment, is qualified for a write-off.
7. Calculate and pay your estimated taxes– If you are a new business owner who has always worked for someone else, this might be a surprise to you, but you can’t spend away from your whole paycheck anymore. You have to carve out some for taxes. The money you receive from every sale needs to be taxed. Many owners are unable to pay their tax bills simply because they weren’t expecting that expense. Avoid paying penalties and consult with a CPA to pay your quarterly taxes, so you don’t fall behind.
8. Deduct your home office expenses– Many business owners or work-from-home employees have a designated home office that they exclusively use for business purposes. If you have a home office that is your principal location for your business, or a place where you regularly meet with your clients or customers, you may be eligible for this deduction. Ask your CPA, to find out more.
All it takes is better planning and preparedness to have your business save on taxes. Being aware of your qualified tax deductions and paying your taxes on time will make sure that tax season doesn’t end up being a nightmare for you.
9. Start-up costs– Expenses that happen before the first sale happens can’t be deducted until that first sale. Knowing this is important because many start-ups spend a lot of money on setting up a business, but then change their minds and ditch their idea before making the sale. Then, come tax season, they are surprised when they find that they can’t write-off their “start-up expenses”. Law states that you either make that first sale to be eligible to deduct up to the first $5000 in the first year of business, or you can deduct it after 15 years. Again, check with your CPA to find out more.
Keeping a detailed record of all your receipts is imperative if you want to know how much of a refund you are entitled to. Exemptions can be found in many places. Ideally, you should be made aware of these exemptions by your accountant. However, it is always best to keep track of this yourself. Even great accountants can sometimes forget to remind you if you are eligible for a certain deduction.
[Read Next: A Checklist for Your Startup Business]
Tycoono and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
