We all have one fear in common – everybody is just a little bit afraid of the IRS. Although a little fear is healthy, for the small business owner or self-employed individual, 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 track every legitimate business expense. 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 household insurance, rent, repairs, maintenance, utilities, and other expenses could be deductible.
Business Mileage: If you track every business mile driven, you’ll pay less tax. But, if those miles aren’t tracked properly they can be disallowed.
Interest on Business Debt: Monthly business checking account fees, bank overdraft penalties, business credit card finance charges, interest on a home equity loan taken out to fund your business, and annual credit card fees are all deductible.
Self-Employment Health Insurance: Self-employed health insurance costs are a business deduction, and are subtracted on your personal tax return.
IRA and Retirement Deposits: Self-employment and small business Retirement Accounts and IRA Deposits are also posted to your 1040 personal tax return.
Promotional Expenses: If you spent money, or traded goods, to get your business name or product out 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 produce income, as well as general business classes are all deductible. Remember to record all mileage and travel expenses if you have them; those are deductible too.
Subscriptions: All magazines, newspapers and newsletters you purchase to enhance 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 loft space, or have other rent expenses within your business, those expenses are deductible.
Inventory: Inventory costs are only deductible as inventory is sold; unlike most other business expenses, it is not always deducted in the same year as 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 valuable deductions. Keeping good records, documenting all business expenses are all you’ll need should an audit arise.