It’s no secret that there are seemingly countless tax deductions entrepreneurs can take advantage of, but it takes knowledge, experience, and extensive research to learn how to fully maximize your tax deductions as an entrepreneur. While there may be specific tasks or systems you should implement regarding tax deductions based on your specific type of business, there are a few things every entrepreneur should do from the very beginning to make the process of maximizing your tax deduction simpler when Tax Day rolls around each year.
- Keep good, thorough records. From a business lunch receipt to your mortgage statements, you should ensure you have an effective system in place for filing and storing your records for easy collection each April. It is an absolute that business owners need to log their expenses as they happen so they will not be forgotten when it comes to filing your business taxes. The system a business uses will evolve over time possibly from a simple spreadsheet to a bookkeeping program to a full time bookkeeper.
- Always submit itemized deductions to minimize your tax liability. Although standard deductions may be tempting because they are simpler and often easier to understand, complete, and submit, it is imperative that you take the time and energy to submit fully itemized tax deductions when your expenses exceed the standard deduction to maximize your deductions and minimize your overall tax liability.
- Consult with a good tax accountant or ensure you fully understand the process of submitting your own taxes correctly. Attempting to save money by completing your own taxes may result in a decrease in tax deductions simply because you may not know everything you are eligible to submit as a deduction. Unless you have extensive knowledge of tax laws and tax deductions for entrepreneurs, it can be extremely helpful to hire or consult with a tax professional to get the most out of your tax deductions.
WHAT CAN I DEDUCT?
Oftentimes the most profitable deductions include those regarding office space, office supplies, and travel and meal-related business expenses because of the large amounts of money typically spent in these areas of business.
- Expenses related to your home office
If you have a home office, you are eligible to write off portions of your mortgage or rent, home insurance, electricity and internet. While it is required that your home office is used as an office and nothing else, it does not have to be an entire room. Simply measure the space used as an office and calculate what portion of the expense is used in that space.
- Office supplies
Every time you make a trip to the office supply store, you should be retain and file your receipt. Whether it is notebooks, pens, or a printer, if you are using it in your business, it is fair game for a tax deduction.
- Mileage and vehicle registration fees
If you drive a vehicle in connection with your business activities, for example to business meetings with employees or lunch with your clients, you can write off vehicle-related costs, such as mileage and your car registration, as a tax deduction. There are two ways to determine how much you can deduct:
- Mileage-Total your mileage, adding in any tolls and/or parking expenses paid on the trip, and then multiply that total by 54.5 cents.
- Actual Expenses-Compaire how much you use your car for business-related driving versus personal driving. Deduct the percentage you have determined is used for business-related driving, including gas, repairs, and insurance.
- Business insurance
If you pay premiums for any type of business insurance, such as business liability insurance or credit insurance, you can deduct those premiums. This may help business-owners who dislike paying premiums because they feel like a waste of money feel more inclined to pay those premiums.
COMMONLY OVERLOOKED TAX DEDUCTIONS
While most self-employed individuals know about these more obvious deductions for which they are eligible, there are others that are very commonly overlooked. Researching these lesser-known or lesser-recognized tax deductions may help you maximize your tax deductions as an entrepreneur.
- Retirement contributions
If you are self-employed and paying into your own retirement fund, you can write off those payments. This is beneficial because you will lower the impact on your take-home pay by decreasing your taxable income.
- Self-employed health insurance
Similar to deducting the premiums you pay on your business insurance, entrepreneurs with self-employed health insurance are eligible to deduct the premiums they have paid for both medical and dental health insurance for themselves and their families.
- Airline baggage fees
If you are self-employed and you travel for business, you can deduct your baggage fees on business-related travel.
- Membership dues
As a self-employed entrepreneur, you are able to deduct any membership dues you pay to professional societies of which you are a part.
- Phone bills
If you use your phone for business-related tasks, you can deduct your phone bill, whether that is a landline or a cell phone.
Treating your clients or employees to lunch is not the only way you are able to use business-related meals as a deduction. If you are traveling for business and grab a meal at the airport or order room service at the hotel, fifty percent of that meal is tax deductible because it is related to business activities.
- Publication subscriptions
Tax deductions even extend to publication subscriptions for specialized magazines, books, and journals related to your business. For this deduction, the publication must be specific enough to prove that it is directly related to your business. For example, you could not write off a local newspaper, but you could deduct the cost of a legal publication or medical journal.
Whether it is Facebook ads, Google ads, television commercials, or a billboard, you can deduct any costs of advertisements for your business.
As an entrepreneur, paying taxes is most likely one of your greatest costs. While you have so many options for tax deductions, it can sometimes feel like difficult terrain to navigate.
There are some great resources to help you research which tax deductions you are eligible for, but if you are looking for professional guidance to help you maximize your tax deductions as an entrepreneur, our team at Anderson Advisors is here to help. Contact us today at [email protected] or call us toll free: 800.706.4741.