8 Tax Tips for Small Business Entrepreneurs
Congratulations! Whether you finally decided to stop procrastinating and open that small business you’ve been talking about forever or you’ve been running your own side hustle for a few years, you deserve hearty kudos for taking a risk and living a dream many of us have but few ever do. Being a small business owner has significant rewards, but it also comes with some drawbacks and pitfalls you must be aware of if you’re going to succeed. One of those areas is how to ensure you are maximizing your tax savings with some basic yet important strategy. A recent study published in Forbes Magazine indicated that as much as 93% of small business owners overpaid their taxes annually. (Forbes, April, 2018). Here are some tips we’ve put together for to help you take advantage of tax savings for the small business entrepreneur.
If you own a small business, chances are that you are doing a great deal of the necessary travel yourself. All those rides to the airport or to drop off a package add up. Make sure you are keeping track of any mileage you incur for your business by using mileage tracker, and then remember to provide those to your tax accountant. Even if you’re using your personal vehicle, those miles add up, and could be a hefty deduction when the time comes.
- Home Office.
If you are running your business out of your home in an area of the house that is used only for your business (a dedicated home office), you are eligible for a home office deduction. This cut gives you a $5 deduction per square foot up to 300 feet.
- Going Green.
If you’re implementing sustainability initiatives in your business, you should keep track of what you’re doing and do a little homework on what type of tax credits are available to reward your efforts. For example, if you’re using a hybrid vehicle for your business, you might qualify for the IRS Plug-In Electric Drive Vehicle Credit. Do a little homework on this topic and as your tax accountant for more info.
If you have set up an insurance plan for yourself or your employees, the premiums you pay for this insurance might be tax deductible, as well as other insurance premiums you pay to protect your business. Make sure you factor these in when tax times comes.
- Keep Careful Records & Receipts.
Keeping any receipts related to business – like travel, meals, entertainment, supplies, etc. – is especially important. The IRS allows for 100% of business related travel to be deducted and 50% of meals and entertainment, but due to abuses of this deduction in the past, it’s important to make sure you err on the side of OVER documenting. Your receipts should include all the obvious information (date, time, amount and place of expense) but also note on the receipt who/what the meal was for and the purpose of the expense. For travel expense, make sure you ask the hotel for an itemized bill at checkout. Having all this information ready to go when you meet with your accountant at tax time will make things much easier and faster.
- Save Your Cash.
Many entrepreneurs look at business profits and assume they need to spend their cash to avoid a big tax bill. Don’t fall into the trap of spending a dollar to save fifty cents. If you really NEED a new printer, computer, etc. than buy it, but don’t spend money just because you think it will help you avoid the bill from Uncle Sam. Don’t forget that taxes are the cost of doing business, and if you’re paying them, that means you’re making money, which is why you started out in the first place.
- Save for Retirement.
It may seem like something you can put off, but starting picking the right retirement plan and starting to develop it is something that smart entrepreneurs do. Ask your tax advisor about which plan is right for you. These days, many entrepreneurs are looking at opening an SEP-IRA, thanks to it being cheap to open, and its’ high contribution limit (which is all tax deductible). Ask your advisor about which plan is the right fit for you.
- Invest in Professional Software.
This may seem like a no-brainer, but investing in today’s business software is a terrific way for small business entrepreneurs to avoid headaches and make sure they are on the right track when it comes to tax time. QuickBooks is the leader in this race for a reason. It’s user friendly interface and organizational metaframe are unmatched. If you need some help getting off the ground with it, contact your tax advisor and see if they have a Certified QuickBooks Pro on the team. We do here at EPA!