Whether your business is big or small, there are numerous tax breaks out there that are under utilized. Here’s how to get the most back.
Tax deductions are a great way for your business to save money by lowering your tax burden.
The problem is that many of these money-saving deductions are unknown and buried within nearly 75,000 pages of the U.S. tax code. Nobody can be blamed for missing a few of those deductions with a tax code that size.
Perhaps the biggest losers when it comes unclaimed deductions are small businesses based out of homes.
While 56 percent of all small businesses fall under this category, only 30 percent of them take advantage of the home-based deductions they’re entitled to. That’s a lot of money being left on the table.
Whether your business is big or small, there are numerous tax breaks out there that are underutilized. Here’s a few ways to get the most out of your taxes.
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If you find yourself on the road a lot for your business, you can deduct the cost of mileage from your taxes.
The rate per mile now stands at 54 cents, although it changes almost annually. It might not sound like a lot, but these expenses add up over time. If you’re driving 50 miles a week per year, the deduction is a respectable $1,352.
However, you’ll have to keep a detailed log to track your mileage. This is for your own benefit, so you know how much you’re driving and you have records in case of an audit.
The government loves to tout the benefits of small business and how important job creation is.
When it comes to taxes, these aren’t empty words. If you just started your business in the previous year, then you’re entitled to deduct $5,000 in startup costs.
The downside is that the cost of your startup has to be less than $50,000 to claim this deduction. If the startup costs are more than $50,000, your deduction will be lowered for each dollar above $50,000 spent.
For example, if you spent $54,000, then the deduction will be capped at $1,000.
The Home Office
Most small businesses are based out of homes, yet these home office deductions are woefully under utilized. Tax breaks for home-based business are so abundant that there are books written on the subject.
The most important thing to qualify is to have a part of the home where business exclusively takes place. This can be an office, studio, storage, etc.
The IRS has a simplified method that makes home office deductions fairly easy.
Simply calculate the square footage for the business portion of your home and then the deductions take place accordingly.
There are some limits to the simplified method, as it doesn’t allow you to deduct depreciation for that portion of the home.
If you want to deduct depreciation, you’ll need to follow the more complicated standard method provided by the IRS.
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This is a big deduction that every business should be using. Salaries are deductible, but that’s just the beginning.
Bonuses and benefits are also deductible, so health insurance, vacation time and other expenses can end up costing you much less than if you didn’t make the deduction.
In the grand scheme of things, deducting your business-related cellphone differences isn’t the most lucrative item on your tax form.
Every little bit helps, so why not take advantage of every option available?
If you use your personal phone for business half the time and the monthly bill is $75, that’s an extra $450 to lower your tax burden.
You’ll need an itemized list from your cell phone provider in case the IRS asks questions.
Food and Entertainment
If your job requires lots of business lunches and the entertaining of clients, you can deduct half of those expenses. This deduction also includes meals you provide your employees through catering.
Depending on your line of work, the entertainment deduction can be especially beneficial. There are some limitations. In an example provided by the IRS, luxury boxes for sporting events are limited to the price of nonluxury box tickets.
So if you paid $3,000 for a 10-seat box but regular tickets are only $30, you can only deduct $900. Club memberships don’t count as a deduction.
When dealing with taxes, mistakes are common. A survey of U.S. accountants by Xero showed that 45 percent of businesses owners mix personal and business expenses.
These types of mistakes can cause a lot of headaches, so it’s best to stay on top of all your expenses and ensure there are no errors.
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Consult the Professionals
As everyone knows, the tax code can be burdensome and complex. If you’re uncomfortable with claiming many deductions, seek a professional tax preparer.
Depending on the size of your company, perhaps a qualified tax attorney could also be of use. Hiring a professional can also keep your apprised of any big changes that could make a difference in your taxes.
Be sure to hire a lawyer well equipped in tax planning and litigation, and make sure they have experience with companies listed on their site or available upon request.