What Can I Do To Reduce Taxes I Owe?

Tax obligations are just part of owning a business. While you can’t escape them entirely, there are steps you can take that will reduce your overall tax burden.

The best time to start considering how to minimize your taxes is early in the year. Records you start keeping now can ultimately benefit you in the end. Here are some of the most important deductions that business owners should remember:

Claim Your Home Office

Business owners rarely enjoy any real free time, so it isn’t unusual to have a home office even if your business is outside the home. You can take a tax deduction one of two ways. If you keep good records, you can deduct both your direct and indirect expenses. Direct expenses include things like electrical work and painting done inside the home office. Indirect expenses include the percentage of your home’s mortgage, utilities, and other expenses. The percentage you can deduct is found by figuring out what percent of your home’s space your home office occupies.

If keeping track of your utility bills and other expenses seems like too much of a problem, you can opt to use the IRS’s simplified home office deduction. It allows business owners to take a $5 deduction for every square foot of office space, up to 300 square feet.

Itemize All Business Purchases

A lot of business owners fail to keep good records of small expenses, and that can add up to a big loss when it comes time to do your taxes. If you need to replace your aging laptop to work on the company website, that’s a business expense. So are the file folders, pens, notebooks, software, and all your other supplies.

You can even deduct the cost of a business vehicle in some cases. If you buy a van or other vehicle for your business that weighs more than 6000 pounds, you can deduct its depreciation up to $25,000.

Involve The Kids

Many business owners overlook potential deductions in the form of their minor children. If you’re a sole-proprietorship or an LLC, you can hire your minor children without having to withhold either FICA or payroll taxes.

Keep in mind, that kids have to be employed for a legitimate business need, but even younger children can start small. Hire the youngest to do office cleaning or simple filing and let them work their way up. It’s a great teaching experience and a great deduction.

Invest In Your Retirement Plan(s)

You don’t have the benefit of an employer to match your 401(k) contributions. However, the IRS does allow you to put up $53,000 away for your retirement. You can choose an independent 401(k) or an IRA to hold your deductible contributions for the future.

Use A Tax Preparation Service

A lot of businesses miss deductions simply because there are so many and the laws are constantly in flux. Being an expert at your business is difficult enough without having to be a tax and retirement plan expert as well.

That’s why it makes sense to take advantage of the benefits professional accounting and tax preparation services offer. The expense of such services is offset by the fact that you not only get to deduct the cost of the services themselves but the additional deductions a professional might find you. A professional can recommend changes to your business structure that will allow you to take greater deductions and help you categorize your transactions in a way that permits maximum deductibility.

As always, keeping good records helps at tax time. If you’ve previously taken a casual approach to your bookkeeping, it’s time to change. Accounting and tax professionals can only work with the information you have to give them. The better you keep your records, the more likely they can find ways to ease your tax burden.