Updated: Jul 29, 2020
Tax season is around the corner and whether you’re filing as an LLC or S Corp, you want to get the most savings possible. Here are some basics of tax tips on deductions for small businesses:
Get the most out of your auto/gas deduction: The government lets you deduct business-related car expenses, which you can calculate using two different methods: Standard Method (in 2015 it is 57.5 cents per business mile plus tolls and parking) & Actual Method: add up all actual automobile expenses – including gas, repairs, oil change, car insurance, car washes, etc. – and then multiply it by your business percentage.
Get the most out of your home office deduction: Many small business owners are afraid to claim “home office” deductions for fear it will bring the auditor a-callin’. Just make sure you keep well-organized records, and that you can prove your deductions are indeed for business expenses and you’ll be fine.
You can deduct educational expenses that maintain or improve skills required in your present employment, including seminars, classes and convention fees.
The costs of launching a business are considered capital expenses, and you can deduct up to $5,000 your first year in business.
Keep business and personal expenses separate. That means maintaining separate checking accounts and credit cards for your business.
Hire your kids and spouse and save on next year’s taxes. For example, if you pay a minor child up to $6,000 from your business profits for helping you with business tasks, that amount is not taxed the same as your ordinary income. Also, if you hire your spouse, then as his or her employer you can pay for the healthcare of their family – i.e., yours – and deduct those payments.
If you have unsold or unused inventory, instead of spending money on storing it, donate it and get the tax deductions. But keep in mind that goods donations greater than $500 have more rigorous reporting rules.
When faced with a choice of deducting either your actual auto expenses or the mileage deduction for business-related driving, take the mileage deduction. It’s a better deal with gas prices so high. Mobile apps such as Outright can make it easy to log your mileage as you go.
Offering fringe benefits such as health, vision and child-care assistance instead of standard raises can reduce tax burdens.
As you work with vendors or outside contractors, anticipate which ones you will pay more than $600 to over the course of the year so you can send them 1099-Misc forms.
Keep close track of all business expenses throughout the year and enter them into your accounting system in a timely fashion.
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