Tax time can be harrowing for small businesses. On the one hand, you’re scrambling to identify and take every possible deduction. You want to make sure that each piece of office equipment is depreciated, that every mile you’ve put on your vehicle for business purposes is accounted for. In some cases, it’s tempting to pad some of those numbers a bit, in hopes that it’ll result in a lesser tax burden. Apart from being illegal, of course, this kind of practice is bound to get you audited and paying more in the long run.
The good news is that there are plenty of legitimate ways to decrease your small business tax burden within the framework of the law. Here are ten small business tax tips you should consider:
1. Get organized. The first step in being able to save money on your taxes is having all of the necessary documentation. Don’t wait until the last minute to start sorting through receipts and other records. Develop a filing system where you can store all the relevant data for given types of deductions and expenses.
2. Understand tax law. The tax law landscape is complex, without a doubt. You can’t be expected to understand all of the intricate workings of the tax system. That being said, spending a few hours researching the types of deductions you can take and what sorts of credits are available can pay off big time.
3. Incorporate if it’s right for your business. If you have a relatively new business, you’re probably not going to show a profit for the first couple of years. Incorporation in that instance isn’t always a good thing. But if you have a strong small business that’s been consistently making money, you should consider a different structure. Sole proprietorships and partnerships receive some of the heaviest tax burden in those cases.
4. Consider setting aside a portion of your home for a home office. Now, let’s be clear about this: there are specific rules as to what constitutes a home office, and you need to follow them to the letter of the law. That being said, a home office can be a tremendous deduction for your business. If your business doesn’t’ require a storefront and if you don’t typically meet clients in your office, it can work very well for you. It will also save you the cost of buying or leasing office space.
5. Find other personal deductions for business use. The same holds true of using your vehicle for business use. In the case of a vehicle, you need to keep a daily mileage log, and be able to show when and why the vehicle was used for business purposes.
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