Tags: taxes | small business | money | file

Small Business: After April 18, 7 Ways You Can Lower Taxes This Year

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By    |   Monday, 18 Apr 2016 04:15 PM


With a little thought and a lot of planning, tax-lowering habits for your small business can become second nature to you so mid-April won’t have to remain such an anxious period each and every year.

"There's always some missed opportunity on deductions for small business owners," John Wheeler, a CPA and senior financial consultant at Castle Wealth Advisors in Indianapolis, told CNBC.

Small businesses collectively face an average effective tax rate of 19.8 percent, according to the U.S. Small Business Administration's Office of Advocacy. That can amount to thousands of dollars or more in taxes each year, CNBC reported.

Entrepreneurs who start preparing today could reap thousands of dollars in deductions next year, financial experts say.

Here are seven tax-saving tips:

1) Don't mix business and pleasure.
If you're not an incorporated company, you aren't required to keep a separate bank account for your personal business — but it's still a good idea for several reasons, said Gail Rosen, a CPA in Martinsville, New Jersey. "The thing to do is to have a separate checking account for any business-related expenses," Wheeler said. "You could open up a credit card that you only use for business expenses, and that will solve about 90 percent of your problems."

2) Keep detailed records as you spend money.
Recording expenses as they happen — not six months after the fact — can help save time, reduce the chance of accounting errors, and maximize tax returns. "Trying to remember what you spent money on six or nine months ago is a waste of time when you could easily report that in the moment," said Andrew Mellen, an organizational expert and author of Unstuff Your Life. "A lot of us tell this old story of how this is going to take so long, or how we don't have the time. It's a lie."

3) There's an app for that: Electronics makes it easier.
"Rather than scrounging around for crumpled-up receipts, consider using new technology to make life easier. Expensify is a mobile app that lets you take photos of receipts, then automatically records and categorizes each expense — without the need for you to type numbers in manually," CNBC explained.

4) Claim your home office deduction — the right way.
Taxpayers who designate a space in their home to use exclusively for business can get money back through the home-office deduction. "There are two ways to calculate the deduction. The simplified method is relatively straightforward, worth $5 times the square footage of your home office. Alternatively, you can still use the regular method, which takes into account not only square footage, but also utilities, mortgage interest or rent, and property taxes," CNBC explained.

Rosen recommends that business owners who work from home take the time to do both calculations, then choose the deduction that generates the biggest returns. Why? The simplified method is capped at a maximum of 300 square feet — meaning the biggest deduction you could get is $1,500.  "Many people shy away from the home office deduction, or they just use the simple method," Rosen said. "They're leaving money that's owed to them on the table."

5) Track miles driven in your car.
Deductions for business use of vehicles can be calculated in two ways: Based on miles driven, at 54 cents per mile, or based on actual expenses — including gas, maintenance, repairs, tires, insurance, depreciation, and other costs. Business owners should keep careful records of all car-related expenses throughout the year, Rosen said, so they can try out both calculations, and compare the deductions they'd get from them. Again, there’s an app for that.

6) Relatives can be the solution, not the problem.
Small businesses that have positions to fill may want to consider hiring qualified family members. If you employ your own family members, you may be eligible to deduct their wages as a business expense — and in turn, minimize the amount of taxable income you're on the hook for.

7) Don't keep Uncle Sam waiting - file your return on time.
Filling your returns on time may be the easiest tip to fulfill, yet a stunningly high number of businesses meet each year's deadline. "By constantly monitoring activities and making sure that tax is paid regularly and returns are filled on time, business owners can avoid fines," Business Tech reminds us.

And obviously, every dollar saved as a small-business owner can literally push your operation that much more into the "black" ledger column.

And every dollar can help, since U.S. tax-code compliance costs for an employer with one to five employees range from $4,308 to $4,276 per employee, according to the chairman of the House Subcommittee on Economic Growth, Tax and Capital Access, Rep. Tim Huelskamp, R-Kan., The Journal of Accountancy reported.

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With a little thought and a lot of planning, tax-lowering habits can become second nature to you so mid-April won't have to remain such an anxious period each and every year.
taxes, small business, money, file
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2016-15-18
Monday, 18 Apr 2016 04:15 PM
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