Top 5 Ways to Slash Your Small Business Tax Bill
Few times of the year are as dreaded by small businesses as tax season. For many people, tax season is a process of going through a big shoe box of receipts to determine the possible damage. However, it also presents an opportunity to make important deductions and receive credits for your hard work. Here are the top five ways to slash your tax bill this tax season.
1. Get Paid to Travel
The majority of business-related travel is tax-deductible. Such expenses as airfare, hotel stays and car rentals can be deducted as business expenses if the reason for travel is for business operations, expansion or training. Conference fees are often deductible. Meals are deductible up to 50 percent. For mileage related to your business, you have the option of using the standard mileage rate or the actual expenses related to the use of your vehicle, including the actual gas expense, repairs and insurance. Keep up with receipts related to travel, and account for the purpose of the trip, the reason for the purchase and the amount of the purchase.
2. Account for Interest
As a business owner, you have likely accumulated some business debt through a small business loan or business line of credit. Business financing can help get your startup off the ground, and the interest you pay is generally tax-deductible. Keep up with the business loan documents that show the legitimate business purpose of the loan and the terms of the agreement.
3. Deduct Expenses Related to Your Home
Many small businesses are operated out of the owner’s home, entirely or in part. Take all deductions that apply to your specific business situation, such as:
- Home office deduction
- Mortgage interest
- Home phone
Ask your accountant or use tax preparation software to see if you qualify for other expenses related to the use of your home.
4. Make Charitable Donations
Many business owners are aware of their ability to get a deduction for charitable donations; however, there may be more practical ways to donate than simply writing a check to a charity. For example, if a stock is donated, the value of the stock at the time of the donation is factored in, not its original purchase cost. If you have stockpiles of unused inventory, consider donating it and claiming the charitable deduction. If you have a business asset you would otherwise dispose of, consider donating it instead.
5. Prepare for Next Year
It is never too early to start preparing for the next tax season. Remember, you do not need to be a tax expert to start masterfully preparing for the next season. A large part of tax filing involves organizing your documentation for the accountant or tax expert to review; implementing strategies into your daily, weekly and monthly routine can help you be prepared for the next filing season. Some quick tips for an efficient accounting system include:
- Sort papers – Don’t leave papers around to pile up on your desk. On a daily basis, sort papers into different categories and place them in labeled folders, including receipts, invoices, product purchases, bills, receivables and other categories specific to your business.
- Reconcile receipts with account statements – Pair up your statements and receipts for clarity.
- Install accounting software and use it throughout the year.
- Sort electronic bills into folders that are updated automatically, such as emailed receipts that are directed into a certain email folder.
- Schedule time every month to run financial reports and review information for taxes.
- Make automated tax payments for payroll, self-employment or anticipated taxes.
These tips and tricks can help you minimize your tax bill and be better prepared for next year.