We all have a common fear: we all have a little fear of the IRS. While a little fear is healthy, for the small business owner or self-employed person, too much fear of the IRS can be bad for the bottom line.
If you want to pay less income tax, take the time to learn what others in your industry are deducting and keep track of all legitimate business expenses. The savings could easily be several hundred dollars. Start with these ten categories.
home office expenses: If you operate your business from your home, a portion of your family insurance, rent, repairs, maintenance, utilities, and other expenses may be deductible.
Business mileage: If you keep track of every business mile driven, you’ll pay less tax. But, if those miles aren’t tracked correctly, they can be voided.
Business Debt Interest: Monthly business checking account fees, bank overdraft fees, business credit card finance charges, interest on a home equity loan taken to finance your business, and annual credit card fees are all deductibles.
Health Insurance for Self-Employed Workers: Self-employed health insurance costs are a business deduction and are subtracted from your personal tax return.
IRA Accounts and Retirement Deposits: Retirement Accounts and IRA Deposits for self-employment and small businesses are also reported on your personal 1040 tax return.
Promotional expenses: If you spent money or traded goods to get your company name or product known to the public, that cost is deductible as a promotional expense.
Seminars and Classes: Any classes that make you better at what you do to generate income, as well as general business classes, are all deductible. Remember to record all travel expenses and mileage if you have them; those are also deductible.
Subscriptions: All magazines, newspapers and newsletters you buy to improve your business knowledge, including online subscriptions, can be deducted on your business tax return.
Rent: If you pay rent for an office, desk space, chair space, or storage space, rent tools or equipment, pay for attic space, or have other rental expenses within your business, those expenses are deductible.
Inventory: Inventory costs are only deductible as inventory is sold; Unlike most other business expenses, it’s not always deducted in the same year the money is spent. The IRS has specific rules for inventory management.
A tax professional can only work from the information you provide, and unless you understand what you can and cannot deduct on a business return, even a good tax professional will miss out on valuable deductions. Keeping good records and documenting all business expenses is all you’ll need in the event an audit comes up.