If you run a small business, the easiest thing may be to hire a tax professional to do your tax work come tax time. But the fact is, taking the time to do it yourself, or at least to be knowledgeable enough to make smart decisions, is able to pay big dividends. There are a number of deductions that small businesses could make but often don’t. Here are some areas to keep in mind.
Your Home Office. This deduction is often underreported because it is not fully understood. The self-employed worker doesn’t want to inadvertently deduct too much and risk an audit. What’s to be done? If you understand exactly what you can deduct, you’ll have nothing to fear from the unlikely event of an audit. The first thing to do is make sure your home office is located in a set-apart location within your house. You can’t multi-task this, with your home office occupying the southeasterly quadrant of your kitchen. The office must truly be a dedicated office/room. The same goes for your computer. An auditor will not be made to believe that the only computer in your house is used solely for office work. Therefore, if you have just the one, get a dedicated work laptop, or don’t make this deduction. Finally, one reliable deduction is simply to make a figure based on the square footage of your house that is taken up by your office. If it takes up 10% of your house, you may deduct 10% of your house’s mortgage payments, utilities, maintenance, etc. on your taxes.
Gadgetry and Tech. This is an investment on the feds’ part to promote innovation in their nation’s businesses. You can’t keep up if your technology is obsolete, so business technology purchases are deductible. Check section 179, but many items are applicable. You can usually deduct it all at once or split it up over several tax years. The same applies to payroll and bookkeeping software (and other types) and vehicles. However, if you have just the one car, you won’t be able to realistically portray it as your “business vehicle”. As always, to deduct, these items must have specific business utility and be separate from your private possessions. Don’t forget about journals and information types of things. If you are keeping abreast of industry information and trends, that magazine subscription is deductible. Ask yourself, “How do I spend money to keep my business up to date and improving?” Many of these purchases can come off your taxes.
On the Road Expenses. The government wants your business to grow to the point where you have to travel a lot. They reward you for your hard work building the economy, by making your flights, accommodations, car rentals, etc. fully deductible. The food you eat while traveling is only half deductible, but that’s not bad, right? Be careful, if traveling with family or friends, that you only try to deduct your own business expenses. If you pick up the bill for a business dinner, it’s also a 50% deduction (make notes on the receipt to make things clear at tax time). If you go to a good conference in your field, it’s deductible. Always try to have a good time wherever you go, but the casino visit you make while conferencing in Vegas is, of course, not tax deductible. That holds true for all “entertainment”.