💰 Top Tax Tips Every Entrepreneur Does Not Want to Miss
For most entrepreneurs, tax time is probably the most stressful time of the year. A lot of people either find themselves under prepared or loosing track of deadlines making this time of year seem like more work (than it has to be!).
Out of all the sole proprietors (owns small business) that filed taxes in the U.S. in 2019, only 73% said they felt prepared come tax time.
If you are in the other 27% of entrepreneurs filing taxes this season who may not know where to begin, then we are here to help. Here are the top tips all entrepreneurs should consider to avoid missing out on valuable deductions, or worse, receiving tax penalties.
Tip #1: Deduct your home office and utilities.
Although enacted in 2013, many entrepreneurs are still unfamiliar with this deduction. Many may also be afraid to take it because they've heard it will "trigger" an audit. This is not the case. If you deserve a deduction, by all means, take advantage!
Generally speaking, to qualify for the home office deduction, you must use a portion of your home exclusively and regularly for business purposes. This home office can either be the primary location of your business or a place where you regularly meet with customers or clients. There are some exceptions to this rule such as daycare and storage facilities.
Tip #2: Deduct your advertising and print costs
Most businesses, big or small, have to spend considerable amounts of money on advertising, and this is yet another largely missed tax deductible.
Typically businesses will tell me of their print, television, and digital media advertising costs, but many fail to realize there are so many more. Any "Promotions directly related to the business" is to your deductible advantage as an entrepreneur , such as:
Display racks (highlighting products)
....even software purchases and subscriptions that you use for that you use for marketing, accounting, or inventory can be tax deductible. This is also true for any periodical subscriptions that your business has paid for. If you have any questions about what may or may not be tax deductible, feel free to leave in the comments below.
Tip #3: Travel Expenses
Did you travel for business last year? Everything from airfare, lodging, dry-cleaning, and even 50 percent of your meals is fair game as a deductible expense. Even renting essential work related equipment (i.e. vehicles) and the cost of entertaining prospective clients (i.e. dining) can be claimed.
Tip #4: Startup Costs
Yes. Those expenditures spent before you even officially launched your business, are major tax deductions you could be missing out on. This is one of the LARGEST tax savings I see year-after-year with entrepreneurs.
These could include:
Legal and accounting fees
Cost of research and development
Start Up Inventory
Long-term assets like computers, equipment, and office equipment.
Costs you incur to form a partnership, limited liability company, or corporation.
A lot of the time our businesses start as Labors of Love and we put in time, resources, and money that the IRS would gladly give us a break on, if we document them 😉
Tip #5: Retirement Plan
Putting money into a tax-deferred retirement plan will lower your taxes — even if you are just contributing the minimum amount. Best of all, you can open a retirement like a SEP-IRA right before this year’s filing deadline. This means you could open a retirement plan in February and still file it in April.
To guide you along, the IRS has a tool to help calculate your plan contribution and reduction.
Tip #6: Depreciation of Equipment
Regardless if you purchased used or new equipment for you business, you can claim a Section 179 Deduction, otherwise known as a Special Depreciation Allowance. This type of deduction is namely used for service-based businesses that require large machinery or computer systems. I have seen T-shirt press companies and small gyms benefit largely from this type of deduction strategy. Note: You can claim up to a maximum of $500,000/yr.
Tip #7: Education Expenses
If you took a course or attended a workshop to enhance your skills, those educational expenses can be deducted. You can also claim textbooks, as well as, trade publication subscriptions or donations to business organizations.
Tip #8: Keep Personal and Business- separate!
Especially as you are starting out as an entrepreneur, it is easy for the lines between business and personal to blur. It may not seem like a big deal to use the same bank account or credit card for all of your expenses.
➡But, it is to the IRS.
Remember, the IRS doesn’t want you to deduct things like a computer, meal, medical bills, or mortgage if it’s not for business. Trying to "trick the IRS" will only result in an audit and/or penalties. To avoid this, keep all of your personal and business expenses separated and get yourself a tax pro to guide you on your entrepreneurial journey!
Conclusion: Document Everything. & The sooner you file, the better.
Entrepreneurs should start on their business taxes before the end of the year. As explained in a previous post, this is because it will save you time and money to file your taxes faster and easier.
Filing sooner will also prepare you for how much you may owe the government, gives you the time to make any necessary changes, and allow plenty of time to meet with an expert.
And as we all know, the sooner you file, the sooner you’ll receive your refund. Happy filing!
Paragon Tax and Bookkeeping Services