Small business tax tips
If you've purchased a business this year or are new to small business tax structures, there are a few things to keep in mind. While it is possible to do your taxes on your own, consider working with a CPA. A tax professional can ensure that your business is taking advantage of all the deductions available and, more importantly, that you're paying everything you owe. Here are five other tips:
•Think about taxes all year long. Small business owners should not treat income taxes as an annual event. Rather, tax planning should be a year-round activity. Waiting until the last minute makes tax preparation more complicated and limits your money-saving options. •Be aware of law changes. Even with the help of a skilled professional, a small business owner must keep up with new changes. This ensures your tax professional is doing the best possible job and keeps you informed as a business owner. •Don't make assumptions. Never make business decisions assuming that particular tax breaks will pass or that certain policies will be enacted. •Choose the right state to incorporate in. You don't need to incorporate your business in the same state in which you run your business. •You don't actually want a tax refund. It is possible to get a tax refund as a small business, but in most cases, it isn't to your benefit. Typically, a refund means you overestimated the amount of taxes you paid, which could have been reinvested back into your business.
Key takeaway: Tax considerations for small business owners include planning for taxes year-round, keeping abreast of any tax changes and choosing the right state to incorporate in.
Top small business tax deductions
This isn't a comprehensive list of tax deductions available to small businesses (and you need to ensure that your business is eligible for these deductions). While this list provides potential deductions, it's best to work with a CPA, who can ensure you get all of your relevant deductions.
•Rent. If you rent your office space or retail location, the cost of your rent is fully deductible. •Home office. If you have a dedicated workspace in your home (it must be regularly and solely used for business), then you are eligible to deduct expenses related to that portion of your home. The simple option is to take $5 per square foot up to 300 feet, but you can break it down as a percentage of the total square footage of your home and itemize your costs related to the space. •Advertising. Promoting your business not only helps grow your business, but it also may shrink your taxes, as these expenses are fully deductible as well. This includes things such as business cards, fliers and digital marketing. •Vehicle. As long as you can document and verify that the vehicle is used for business purposes, you can deduct the operation costs. As with the home office deduction, you can choose to use the simple deduction, which is 57.5 cents per mile as of 2020, or you can itemize specific costs. •Utilities. The basics of keeping your business running are fully deductible as well. You can deduct the costs of utilities such as electricity, water, heat, internet and landline. •Travel. Business travel costs are fully deductible. These include flights, hotels and other transportation costs you incur while on a business trip. •Employee salaries. Paying your employees pays off. Their salaries – along with many benefits, like retirement and education offerings – are tax-deductible.
Key takeaway: Some of the top deductions small businesses should be aware of include rent, home office expenses, employee salaries and utilities.