As a small business owner, you wear so many hats. We understand it is difficult to keep up with boring tax laws so we summarized best practices into 7 steps based on an article Forbes published titled, 7 Easy Tax-Saving Tips for Small Business Owners. Hopefully, this article will provide you with valuable insight on how to save some money.
- Tax Software is your Friend
You can use software like TurboTax, TaxAct or H&R Block. Interesting fact…”The IRS has reported less than 1% of online tax returns have errors. That number skyrockets to 21% when you file using paper returns.” But sometimes it is best to outsource to a bookkeeping partner or CPA. There are a lot of small deductions you are probably missing which is costing you money. Plus, your time is best spent focusing on your customers and not trying to figure out the nuances of tax deductions on tax software.
- Follow your Spending to Track Deductions
There are so many apps like Expensify, Quickbooks, Concur, Xero, or Zoho Expense to track expenses, but it can be overwhelming. For example: should you automatically import bank and credit card statements? Are you entering debits and credits properly so the balance sheet reconciles? Do you have visibility into expenses and an approval process? These are all important because there are tax implications and your potential investors will want detailed financial information. This process should be automated so you are not trying to find receipts to take with you to your CPA.
- Pay your Retirement Accounts First
It is important to plan for your future as a small business owner. We know you love what you do but you do not want to work forever. Depending on your tax status you may be able to contribute to a traditional IRA up to $5,500 per year or a combination of 401(K) or SEP IRA of up to $55,000 per year. If you are over 50 years old you can contribute even more to your retirement. You definitely should talk to your CPA or financial advisor to determine what is best for your retirement planning.
- Deduct your Home Office
Small business owners tend to work from home too. It is important to explore potential tax deduction for your home office. Most people assume home office tax deductions are a red flag for an IRS audit, this is not true. We recommend consulting with your CPA to determine your tax deduction options.
- Stop Ignoring your Auto Expenses
As a small business owner, you can deduct auto expenses related to your business. The IRS provides two ways to calculate business-related car expenses. One, track your actual auto expenses and deduct the percentage of usage that is business related. Two, track your actual mileage and take a tax deduction for those miles. The IRS announces mileage reimbursement rates every year. For 2018, the rate is 54.5 per mile. You can automate this process with apps that help you track your mileage via your location services on your mobile device and GPS usage.
- Employ Family Members
As a general rule of thumb, we do not recommend hiring family members, but we do need to mention the potential tax benefits. If your spouse provides business services for your business, then this can increase the number of contributions for retirement planning. Again, it is important to consult your CPA or financial advisor to evaluate the options available to you.
- Track your Carryover Tax Deductions
Carryover tax deductions include capital losses, net operating losses, home office deduction or large charitable donations. If you have any of these you should consult your CPA to consider your best course of action so you can benefit from the available tax deductions. Tax deductions are available for your benefits so take full advantage of them.
Important 2018 Tax Deadlines Remaining
October 15, 2018: This is the final day the IRS will accept an electronically filed tax return. If you miss the deadline, you will have to file by paper.
If you requested an extension as a self-employed individual, this is your last day to file tax returns for 2017 using Forms 1040, 1040A, and 1040EZ. If you requested an extension as a C-corporation, this is your last day to file tax returns for 2017 using Form 1120.
Deadlines for re-characterization of 2017 Roth IRA conversion.
January 15, 2019: Estimated tax payments for the 4th quarter of 2018 deadline. It is important to remember: realized vs recognized gains, marginal tax rate and alternative minimum tax (AMT).
Congratulations! You made it to the end. If finances make your eyes glaze over then you should consider partnering with a company like Headway, LLC that can manage the back-office services like bookkeeping, so you can focus on your customers. We can manage all your financial needs from daily transactions to month-end closing and financial reporting.