3 ways business owners can reduce their taxes
There are hundreds of ways for a small business owner to reduce his or her tax bill. Although the first two tips below may seem obvious, most small business owners pay too much in taxes because they don’t track these two items properly. As for tip three, the small business owner rarely saves money by doing his own taxes. Read on to find out why.
Tip #1 – Carry a mileage log
Tax professionals are always amazed at how many business owners don’t record every business trip in their mileage log. At about $0.50 per mile, this bad habit can cost you hundreds of dollars in lost tax savings each year. And for those who think they can only guess, failing to check your business miles is very expensive after they add the interest and penalties.
Buy a printed logbook or a small office appointment book, and keep it in your car. Place it where you can reach it from the driver’s seat. Making the job quick and easy is key to recording every mile you drive. For regular trips, start by making a one- or two-letter list of common to-dos. Record these codes on the front of your mileage log.
For example, you can use P for the post office and OS for an office supply store. Next to each symbol, record the exact mileage from your workplace to that location. Once you know it’s 6 miles from work to the office supply store, you can simply write OS.6 into your registry each time you follow the usual route.
For one-of-a-kind trading missions, you’ll need to note your starting and ending mileage; Enter the difference in your mileage log. At the end of each month, add up your miles and write this total at the bottom of the last calendar page. At tax time, add those numbers together and you get the total business miles paid, and the documentation to support your deduction.
Tip #2 – Track every penny of your expenses
If you don’t understand the tax code, you will lose deductions. By the time your taxes are prepared, it’s too late to do proper accounting. And if you’re not sure what you can and can’t deduct in the first place, you’ll always pay way too much tax.
Whether you use computer accounting software or record your expenses on paper, the method for tracking is the same. You should get a receipt for every penny spent, put those receipts in one place where you can find them at the end of the month, sort and total each category and post them for the month. Regular accounting shows the IRS that you are serious about making your business profitable, and it can prevent you from being classified as a hobby industry. The hobby industry cannot benefit from the Business Tax Act.
Tip #3 – Hire a qualified tax accountant
There are thousands of people who offer tax preparation, but you need to find someone who is qualified and will inform you about the current tax law. If you work for yourself, skip the national chains; Many allow first-year preparers to generate commercial returns. Most tax accountants are reasonably priced, and they are more educated about how a small business can use the tax law to increase its profits. Ask others in your profession for a recommendation.
But remember, even the most qualified accountant can make mistakes on your taxes if you don’t provide them with the correct information. It is your job to find out everything you can about what people in your profession are allowed to deduct and how to keep audit records.
When you’re three-for-three, graphing every mile you drive, tracking every penny of expenses, and working with a qualified tax accountant, you’ll pay less in taxes. And paying lower taxes always leads to a higher bottom line.