A business must remain profitable to survive, and this means cutting expenses and saving money in any way possible. Frugal business owners are always on the lookout for the best tips for saving on business expenses at tax time. While getting professional tax advice and guidance is helpful, prudent business owners can find their own methods of saving on business expenses through a little effort and research. Entrepreneurs can adapt this tax advice to fit their own unique business situation.
Seriously consider running a home-based business. Roughly half of all U.S. businesses are home-based operations. There are many tax deductions that are available to owners of home-based businesses. Home business expense deductions can serve as dual savings for both personal and business taxes. Business owners may claim the home office deduction if the home is regularly and exclusively used for business operations or if a business owner meets with his clients at home. In some cases, rent, mortgage interest, home repair and maintenance, and real estate taxes can be claimed as business expense deductions. Separate structures not attached to the home can also be claimed as home businesses. Home business owners may be able to claim a health insurance deduction if they are paying for their own health insurance. To claim this credit, the business owner must be self-employed and return a net profit for the business year.
Incorporate your business
Corporations, as a rule, receive greater tax breaks than do partnerships or sole proprietorships. There is some paperwork involved for incorporation, but the overall tax savings may be well worth the effort. One other advantage of being incorporated in limited legal liability. This could be an important asset protection move in case an owner is sued in court over faulty products or business practices.
Hire independent contractors
For many businesses, payroll taxes are the biggest tax related expense incurred. If business owners hire independent contractors to work for them, they are saving money at tax time by not having to pay the employer’s portion of Medicare and Social Security taxes. Independent contractors are legally responsible for paying their own taxes. It is important that these hired contractors are truly independent contractors that can verified by documentation in the case of an IRS audit.
Claim personal vehicle expenses
Business owners who are using their personal vehicles for business related activities such as meeting with clients, may be able to claim a portion of their vehicle expenses on their tax return. Business mileage should be recorded separately from personal use of the vehicle. The IRS allows filers to claim actual expenses or use standard mileage rates for the deduction for personal vehicle use.
Keep your receipts for business-related meals, travel, and entertainment expenses
Business-related travel expenses for trips and entertaining clients may be claimed as deductions. However, there are certain rules that apply to these deductions. Expenses for getting to and from one business location to another such as cab fares, tips, and even dry cleaning can be claimed as business expenses. For meals, only 50 percent of the cost can be claiming during business-related travel. Entrepreneurs must be careful about claiming trips that are not business related. If a business owner takes a week-long business trip and spends thee days working but the other four on sight-seeing and leisure; only three days may be claimed as business expense deductions.
Pay business bills early
One easy way for business owners to save on their business taxes is by paying their business related bills early, before the beginning of the year. This way, bills paid by the end of the year can be claimed as deductions for the current tax year. This will reduce the business’s overall tax liability. This could also include purchasing office supplies and equipment for the upcoming business year. This is good advice in two ways: (1) business owners will have the needed materials to begin the new business year, and (2) realized tax savings for the current business year.
Learn all you can about tax laws and regulations
One useful source for business owners for saving at tax time is the U.S. Small Business Administration. They offer several helpful publications about business related tax issues such as Business Structure and Tax Implications. The IRS also offers tax resources to business owners through publications on its Small Business and Self-Employed Tax Center web page. Entrepreneurs can educate themselves on tax laws and business deductions and be better prepared to save on business expenses at tax time. Saving on taxes helps business owners cut down on overall expenses and increase their profits. In tough financial times, this could be the difference between a business surviving and making a profit or a business failure.