Friday, January 9, 2015

Maximize Your Small Business Tax Deductions

Helpful Tax Tips for Small Business Owners

small business, tax tips
With tax season right around the corner, many small business owners should be starting to gather information to file their taxes, whether they know it or not. According to a survey conducted by Small Business Optimism, taxes are the number one problem for business owners in terms of preparing their statements and filing them on time. In order to help avoid the last-minute rush this year, make sure to follow these simple tax preparation tips to help you file your business’s taxes correctly and on time.

Begin at the Beginning: Start-Up Expenses

If you have just opened and began running your business, make sure you pay close attention to this tip. The U.S. Government encourages entrepreneurs to open their own small businesses and even offer a $5,000 in write-offs on their taxes for it. This write-off is meant to cover the business’s start-up expenses and help business owners get off to a good start financially. Some of the activities that are recognized as start-up costs include purchasing the business, employee hiring, training, and marketing.

Know Your Deductible Expenses

Small businesses are allowed to deduct the costs of running there company as long as the expenses being noted are necessary for business operation and not considered out of the ordinary. For example, if you have an item that serves both a business and a personal purpose, it should be allocated in such a way that only the business portion of the purchase is deducted on the tax statement (such as utilities, Internet, and cell phone). It is also important to remember that assets should be depreciated as they run the course of their useful life.

What About a Home Office?

In years past, trying to figure out the deductions and calculations for a home office was difficult. Now, the IRS offers a much simpler way for home professionals but they also have changed the criteria for who may claim this home office deduction. It is important to remember that in order to claim this deduction on your taxes, a portion of your home must be used exclusively for business and also be used on a regular basis for business purposes. If this is the case in your situation, you should be in the clear.

Classify Employees and Independent Contractors Properly

For those small businesses that have employees, classifying workers can sometimes be a struggle. Taking the step to classify these workers as “independent contractors” can be tempting considering the cost savings associated with the classification. It is important, regardless of the savings involved, to make sure you classify workers according to the law – there are strict rules dictating the proper classification of employees within a business and violating these rules can come with some heavy penalties.

What About Retirement Plans?

Retirement contributions that business owners make to themselves or to their employees can be deducted on their tax statement. The positive aspect of making these contributions is that the growth of the amount contributed to the plan will remain tax-free until it is distributed to the account holder. Contributions can generally be made right up to the tax due date, which means business owners can continue to make additions to the accounts even after the previous year has ended.

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*Photo Courtesy of Chris Potter via Creative Commons License

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