For the small business owner, saving money on different expenses can mean the difference between having a business that stays viable or not. One of the best ways to save money if you are self-employed is by smart tax planning. If you’re a small business owner looking for tax savings, think about starting with these tax-saving tips.
- Pay Yourself First
A considerable number of tax advantages exist for those who own small businesses.
It is advisable you save at least 15% of your income each month. However, a CNN Money article points out that this is just a suggested number. Typically, this advice is given to those in their 20s. If you are in your 40s or 50s, saving 15% of your income may not be enough. If you’re not sure how much you need, try a retirement calculator. It’ll give you a rough estimate of what you need when you retire.
- Deduct Your Home Office
You have to work somewhere, and if you’re self-employed, that somewhere is often your home office. Entrepreneur advises business owners to deduct their home office if they do work from home. Doing so can save you a good chunk of cash when it comes to your taxes. However, some small business owners fear taking this deduction. Many think it’ll automatically trigger an IRS audit if they do try to write off their home office expenses. The trick is to keep a separate space that you solely and principally use for business purposes.
- Keep Track of Your Receipts & Expenses
Money expert Dave Ramsey reminds his blog readers to give each of their dollars a job or a name each month. He calls this zero-based budgeting.
To make this work, you need a budget, which is something you should create as a business owner, anyway. Next, you need to know how much you spend. This is where your receipts come in. Aside from the fact that you need your receipts for tax purposes anyway, your receipts will tell you how much you’re spending on what.
Some of those expenses count as business write-offs. (Your receipts will tell you this.) For example, if you hired a graphic designer to create a logo for your business, save that receipt and then write that service off at tax time. Same goes for new office equipment or even car expenses. Keep track of everything.
- Use Tax Software
In an ideal world, you’d have an accountant who helps you keep track of your business expenses. This is a person who advises you on how to save money and where to look for viable business deductions.
However, not everyone can afford to pay someone to do this work for them. If you fall into this category, be sure to look into the software made by Turbo Tax or the H&R Block. These types of software should keep you alerted when it comes to “special” limited-time tax breaks. For example, did you know that after hurricanes Rita and Katrina, a special tax break was set up that allowed both businesses and individuals to deduct charitable donations? Knowing about these allows you to direct your funds in a way that helps your business and others.
- Car Expenses
Your car may be a very necessary part of your business, especially if you consult with clients at their workplaces. If you use your car for a good portion of your business, look into writing this off as a tax deduction.
If you decide to write off your car expenses, you can either keep track of your fuel mileage or your keep keep track of the actual expenses you incur to keep your car running. In the latter case, this can be repairs, insurance expenses, or gas costs.
It’s a fact that many small businesses fail within the first several years of being established. According to Entrepreneur, one of the chief reasons for business failure is running out of cash. Too many expenses contribute to this. For the small business owner, getting tax breaks is one way to sidestep this eventuality. If you are serious about saving your business money, start thinking about the possible tax breaks you can take to reduce your business costs.