While many small business owners give little thought to taxes until a month or so before April 15, it’s never too early to start thinking about your tax bill and legitimate ways in which you can keep it to a minimum.
The image of flushing dollar bills down the toilet may strike some as a bit extreme, but failure to take advantage of every tax deduction available to your business amounts to pretty much the same thing.
So, what are some of the strategies you can use so that you’ll owe Uncle Sam less when it comes time to actually file your tax return?
In a February 2014 article at Entrepreneur.com, writer Chris Newmarker says that the owners of many new small businesses miss an important tax deduction when they fail to claim the expenses they incurred to get their fledgling companies off the ground.
Once that business is up and running, those startup expenses can be deducted on the company’s tax return. And there’s no real limit on how far back these expenses were incurred, according to Newmarker.
As examples of expenditures made to get a business started, he cites a previously purchased computer that has now been converted to business use, lunch or dinner with a prospective client, or a continuing education course in subjects relevant to your business.
Newmarker says you can deduct up to $5,000 for the first year, but the balance can be amortized over 15 years.
While you can claim virtually any expense that can be linked directly to getting your business off the ground, don’t even think about claiming a deduction for which you don’t have documentation.
Whether your business is a new startup or has been around for several years, don’t overlook the expenses you incur in the creation and maintenance of your company’s website.
Even if much of the website-related work is done by in-house staff, you can still deduct the fees paid to outside contractors for the creation of design elements, promotion of the website, or search engine marketing.
If you delegated the creation — and continuing maintenance — of your website to an outside contractor, those costs are deductible.
In “Don’t Let Any Tax Deductions Slip By” at Mint.com, writer Alexandria Ingham looks at some of the deductions frequently overlooked by individual taxpayers. Many of these deductions are available to businesses as well.
For example, if your company donates cash, services, or goods to a qualifying charitable organization, you can deduct the full cash amount or fair market value of goods and services on your tax return.
The Small Business Administration (SBA) estimates that roughly 75 percent of small business owners donate a portion of their profits — 6 percent on average — to charitable organizations each year.
Such donations create goodwill in the community and help to project a positive image for your business. Those benefits aside, you still must remember to claim these donations when tax time rolls around.
While claiming the home office deduction was once widely considered an invitation to an audit, the Internal Revenue Service today seems to be taking a more enlightened view of this deduction.
Whether you operate your small business from a room in your home or simply maintain a home office to work on company business away from your headquarters, you can take the home office deduction. However, the area that you claim as a home office must be used “exclusively” for business purposes.
Beginning with tax returns for calendar year 2013, the IRS offers a simplified formula for claiming the home office deduction.
Multiply the square footage of your home office — up to a maximum of 300 square feet — by $5 per square foot to calculate the amount of your deduction. Using the simplified formula, the home office deduction has a ceiling of $1,500.
The old formula, still available for those who choose to use it, involves determining the portion of the house occupied by the home office and deducting the corresponding percentage of all relevant household expenses.
Motor Vehicle Expenses
Whether your business has its own vehicle or you use your personal car for business purposes some of the time, the vehicle expenses incurred in pursuit of business are deductible.
If your business use of vehicles is fairly minimal, it probably makes sense to use the IRS standard mileage rate, which for 2014 is 56 cents per mile.
However, if you and your employees do a lot of business traveling you may be able to save hundreds of dollar in taxes by using a more challenging formula for calculating business vehicle expenses, particularly for vehicles that are used for both business and personal purposes.
Divide the total number of business miles driven by the total number of miles driven in that tax year.
You can then deduct the resulting percentage of all motor vehicle-related expenses, including not just gasoline but also repairs, new tires, and even car washes.
About the Author: Don Amerman is a freelance author who writes extensively about a wide array of business and personal finance topics.