With April 15th just passing, it’s a great reminder that, as small business owners, we need all of the tax advantages we can get if we want to raise our bottom line. And while I’m more than happy to pay my fair share to Uncle Sam, I also don’t want to pay more than I have to.
So the question is: How do I make the most of my write-offs so I get to keep a majority of the money I’ve worked so hard to make?
Amanda Kendall, EA is owner and primary Enrolled Agent of True Resolve Tax Professionals in Denver, CO, and she says, “As a business of any size, there are a plethora of write-offs you can utilize to legally reduce your tax bill. These range from home office expenses to large equipment purchases and everything in between.”
If you’re a small business owner like me, who works out of your home, this is great news, as you’re able to claim a portion of your home expenses as write-offs. Which expenses exactly? Kendall says that “this can include mortgage interest and property taxes or rent, utilities, repairs of the house that directly or indirectly relate to the office space, and insurance. And don’t forget that storage space you use exclusively for the business in the garage or basement. That area counts for this write-off also.”
As far as equipment is concerned, there are some tax advantages you can receive in this area as well. For instance, Kendall says that “if you know you are going to need a new piece of equipment, why not finance it in November or December in order to claim a couple months’ worth of depreciation with, in most cases, very little expense up front?”
If you’re not familiar with depreciation and what it is, Kendall explains it as “a method of claiming the expense of larger equipment purchases over the useful life of the asset.” She goes on to say that, “If you pay cash for an asset, this is not financially favorable, but it is a required method to claim certain equipment costs.” (Kendall does suggest that you see a tax professional in your area if you want further advice on this issue.)
There are tax advantages to ordering supplies before you need them too. Kendall suggests you build up your stock towards the end of the year, even if doing so means you put it on credit card, so you can claim the expense without having to pay for them until the following tax year. This gives you “the benefit of the deduction to reduce your tax before you have even paid out the ‘cash’ for the expense,” she says.
She also suggests that you take a close look at your retirement plan options as a small business owner, regardless of whether you have employees or not. Why? According to Kendall, “The business can write off portions of this and reduce taxable income. And if you are on payroll through your small business, you are also able to reduce your personal taxable income through some of these options, multiplying the benefit.”
You may be able to write-off travel expenses too, says Kendall. “Most small business owners travel in their day-to-day work for business related activities. Make sure you are tracking your mileage, as this can result in a large write-off for very little effort.” One of the apps she recommends to help make this process effortless is called MileIQ. It logs your mileage automatically, classifies it, and even reports it to you in a simple-to-read log.
Another advantageous write-off involves education and attending conferences. For this reason, Kendall suggests that, when you attend conferences that you are traveling to, “make sure to track your travel expenses so that these can be claimed to lower your taxable income. Airfare, rental cars, lodging accommodations, and meals while traveling are all deductible.”
“All of these write-offs are advantageous to businesses” says Kendall, “especially when you experience a highly profitable year and want to lower the taxable income right at the end of the year.”
I’m always interested in learning other small business owners’ thoughts on relevant topics and issues, so if you have a comment or unique article idea, feel free to contact me at [email protected] (put “Businessing Magazine” in the subject line, please). If I use it, it’s a free link to your website!