As a business owner you can take steps to identify areas where taxes can work in your favor.
Of all the tasks on your plate, small business tax administration is likely to be one of the most time-consuming.
According to the National Small Business Association (NBSA) 2017 Small Business Taxation Survey, one in three small businesses report spending over 80 hours calculating federal taxes each year. While 61 percent of survey respondents send their taxes out to an accounting firm or CPA, 16 percent go it alone and 23 percent split the burden between themselves and outside help.
Spread across several jurisdictions — federal, state and local — the current U.S. tax code is complex and detailed. Even for a CPA, it can be difficult to understand the entire tax code and its impact on a business.
Fortunately, as a business owner you can take steps to identify areas where taxes can work in your favor. You may not be taking all of the deductions available to your business, for example. By evaluating your current taxes and changing what you're tracking, you may be able to save additional money on your business's taxes.
Commonly Missed Business Deductions
There are a number of deductions many business owners fail to take full advantage of when working on their taxes.
- Meals and entertainment: Business owners who frequently entertain clients or use networking events to develop business leads may spend hundreds of dollars' worth of deductible expenses in a given tax year. Few, however, take the time to save every receipt and enter it appropriately. Make it manageable by setting time aside every week to enter receipts, making sure that each one connects directly to a business event, client meeting or client lead. A notation on the back of the receipt or within your accounting software can help you maintain a record of how exactly meals and entertainment related to business activities.
- Home office deductions: The IRS adjusted the home office deduction in 2013, but few home-based business owners are aware of the change. The new, simplified deduction allows a deduction of $5 per square foot, capped at $1,500 or 300 feet, for a home office. Take the time to compute your home office using both the actual and the new simplified option and see which method results in a better tax deduction for you.
- Automobile use: Track the mileage for business-related automobile usage. Keep track of the date, the nature of the trip and the mileage accrued. Records can be stored in a notebook, spreadsheet or in accounting software. Seem like more work than it's worth? Think about this: The 2017 IRS reimbursement rate is 53.5 cents per mile. For a business owner, such mileage can add up to hundreds or thousands of dollars worth of reimbursement from the business for personal automobile usage. Qualifying personal automobile usage includes trips to the bank to make a deposit, travel to a client appointment and other business-related travel. Take the time to determine for your automobile if the standard mileage rate or the actual method results in a higher tax deduction for you.
Employee-related expenses may also be deducted, as can work-related expenses like hotels, air or train fare, meals, entertainment and other costs directly related to job duties. Entrepreneur recommends that businesses create a plan to record how expenses link to business activities. Having an orderly record-keeping process may help you in the event that your accountant — or the IRS — asks for backup to support the deduction. Note that employee-related business expenses are no longer a tax deduction starting in 2018.
Small business tax administration can be complicated, but can also lead to big savings for your business. Make the most of the time you spend on your taxes by taking advantage of all potential deductions. When in doubt, it's best to consult with a CPA or tax expert who can answer your questions.
This article provides general information and should not be construed as legal, HR, financial, insurance, tax or accounting advice. You should consult with your own legal counsel, human resource, accounting or other professional advisor for circumstances pertaining to your business.
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