We all have a common fear: everyone is a little afraid of the IRS. Although a little fear is healthy, for the small business owner or self-employed person, 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 keep track of all legitimate business expenses. 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 family insurance, rent, repairs, maintenance, utilities, and other expenses may be deductible.
business mileage: If you track every business mile traveled, you’ll pay less tax. But, if those miles aren’t tracked correctly, they can be voided.
Commercial Debt Interest: Monthly business checking account fees, bank overdraft penalties, business credit card finance charges, interest on a home equity loan taken to finance your business, and annual credit card fees are all deductibles.
Health Insurance for Self-Employed Workers: Self-employment health insurance costs are a business deduction and subtracted from your personal tax return.
IRA Accounts and Withdrawal Deposits: Retirement Accounts and IRA Deposits for self-employment and small businesses are also reported on your personal 1040 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 they do to generate income, as well as general business classes, are all deductible. Remember to record all travel and mileage expenses if you have them; those are also deductible.
Subscriptions: All magazines, newspapers, and newsletters you purchase to enhance your business knowledge, including online subscriptions, can be deducted from 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 rental expenses within your business, those expenses are deductible.
Inventory: Inventory costs are only deductible as the inventory is sold; Unlike most other business expenses, it is not always deducted in the same year the money is spent. The IRS has specific rules for managing inventory.
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 out on valuable deductions. Keeping good records and documenting all business expenses is all you will need in case an audit arises.