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Legal Deductions to Reduce the Tax Burden on Your Business in 2018

Taxes don’t have to be difficult! When the topic comes up among small business owners, many people automatically think about stressful paperwork and unreasonable fees. Do you feel overwhelmed when it is time to file your taxes? Then it means that you are doing things wrong. Instead of carrying the burden by yourself, it is better to hire an accounting professional to handle the details.

People often assume that taxes are complicated. But, your accounting team can help to simplify the process, making it easy to maximize your deductions so that you can minimize your tax burden. The right strategy is necessary to support your business goals and improve the results that are available for your company.

Whether you are in the early stages of starting a company or you are going through growing pains as the business expands, an accounting team can support your financials during this time. We can put together a solid tax strategy, so that you have complete financial information whenever it is time to make big decisions for your business.

It is important that you take control of your financial tracking and documentation. Then, use these details to leverage your deductions in a legal, effective way. This documentation will back up the tax paperwork that is filed, so that there aren’t any discrepancies if the IRS comes to do an audit.

At Easier Accounting, we understand the tax laws. As a result, we can help you know the best ways to leverage your tax filing, giving you legal options to manage your tax burden. These savings can add up over time, helping to boost the profitability of your company.

Here are some of the legal strategies that you might use to minimize tax burden:

Understand Possible Deductions and Track Your Spending

Look at every penny that you are spending which could be a related business expense. If you are spending money on services, equipment, or supplies that are used to help your business efforts, then those costs can be added to your list of expenses for the year.

One of the biggest mistakes made by small business owners is that they don’t track some of the small expenses that go into running their company. Whether you have a home-based business or a nearby office, it is easy to overlook some of the costs that come from your personal bank account. For example, taking a client out to lunch should be charged to the company, but it is easy to forget that expense and put the meal on your personal credit card instead.

Talk to your accounting team for a detailed list of things that can be written off. You can also find a list of potential write-offs on the IRS website. Each time you spend money on items for the company, make sure to document the spending and record the transaction in your accounting software. The data entry won’t be enough; you need to make sure to keep a copy of the receipt as well.

Even the smallest deductions can add up over time. If you saved receipts that averaged $5 per day, it could add up to $1,825 in deductions over a year! That money is better spent on business development. Or, put the savings into an untouched bank account for your emergency fund.

Use a Good Accounting Software

The most effective way to track your expenses is with a digital, cloud-based software. Gone are the days when hand-written ledgers were sufficient to run a company. Now, you need a software that will help with quarterly tax calculations, ongoing expenses, invoicing, payroll and more.

If you are behind the times and you haven’t implemented an intuitive software yet, then right now is a great opportunity to explore your options. Talk to our team to learn more about the recommendations that we suggest for your company and industry. We have experience working with a variety of small businesses in many different industries. This first-hand experience is a great way for us to offer suggestions that are based on first-hand results. We know what works, and we will always guide your company in the right way.

Be Creative with Employee Raises

Do you have employees who deserve a bonus because of outstanding performance? If your company is thriving, then it might be tempting to offer raises or bonuses for everyone. While these rewards can be a good way to say “Thank You,” you also need to consider the tax implications for yourself and your employees.

When the employee salary goes up, then you need to add in the additional expenses that are required for employment taxes and income taxes. On the other hand, certain types of benefits don’t need to be taxed. If you choose to host a company party, then employees won’t need to pay taxes on the bonus. Or, you might contribute more to the employee’s retirement fund or health insurance costs, helping to offset their out-of-pocket expenses without incurring the tax fees.

These creative bonuses will enable you to leverage the money that you are spending more effectively. Spend the cash on items that can be used as tax deductions, while minimizing the amount that you will need to spend on employment taxes.

Home Office and Business Expenses

It is common for small businesses to start in the guest room or garage of the owner’s home. In this situation, dedicate the space for business efforts. Then, you will have the option to write-off a portion of the costs of maintaining the household. The IRS requires that the area is devoted to your business, so you need to make sure that you aren’t using the room for both personal and business efforts.

Your accountant can help you with write-offs for the square footage that is used (as a percentage of your home), as well as the utilities that are related to maintaining the space. Don’t overlook other costs that might be incurred, such as cell phone use, internet costs, computers, office equipment, and more.

Many times, home-based businesses also have a greater need to spend time in the car for business purposes. Whether you are driving to the bank or going to meet a client for a consultation, make sure to track those miles. These expenses can help with the deductions that will minimize your tax burden when it is time to file your tax paperwork.

Put Together a Tax Plan with Your Accountant

Throughout the year, you need to be looking at anticipated profitability for the business, so that you know what to expect when it is time to file your taxes at the end of the year. If you aren’t tracking the numbers, then it increases the likelihood that you will face a few big surprises when it is time to file your taxes.

Lack of planning can lead to tax bills that are higher than you anticipated. Not only will it cause a strain on your cash flow. But, the tax costs could have been minimized if you leveraged the right deductions for the year. The only way to dial in these strategic deductions is by following a tax plan that was created by your accountant.

This strategy can be customized to match the needs of your company. You can evaluate the upcoming costs and anticipated income. Then, you can be strategic with the purchases of equipment and property to maximize the tax benefits that are available. Timing these purchases can help with the cash flow and tax burden on a year to year basis.

One strategy that you might consider is structuring the way the money is saved after it comes into your bank account. Instead of leaving the cash in the account to be spent on a whim, have a strategy that helps you save for upcoming taxes and potential expenses. You might have 10% that goes to savings, 30% for taxes and miscellaneous fees, and 10% that goes towards product development.

If you have the cash flow available, consider spending 10% on charitable giving. These funds can be used as tax write-offs for your company. Not only will you feel good about supporting your community, but the charitable gifts can also help to minimize your tax burden at the same time.

Talk to the Experts in the Industry

Is it time to improve your business tax strategy? Don’t leave money on the table by overlooking potential deductions that could be used for your tax filing. At Easier Accounting, we are dedicated to offering custom services to our clients. Talk to our team to learn more about how our packages can be catered to match your business needs.

Our team at Easier Accounting offers much more than just tax filing. We strive to support your business goals by providing financial insights and strategies that will help your company grow. We invite you to contact us to learn more about the ways that we can help your small business. We are always here to answer your questions and offer the support that you need: (888) 620-0770

Small Business Owners: Manage Your Tax Burden by Leveraging These Deductible Expenses

There are many advantages of self-employment. Not only do you have the flexibility to make your own schedule, but you can also manage your finances in a way that will minimize your tax burden. If you are spending money on anything that is related to your company, then it is important that you are working with your accountant to write off the applicable expenses.

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How do you know which expenses are deductible? Your accountant can provide specific insights to help you include all of the transactions for your business. This professional financial advice will ensure that you are following the IRS rules. Here are some of the main deduction categories that shouldn’t be overlooked:

1. Home Office Space

If you want to deduct a home office, you need to make sure that the space is dedicated to your work activities. The work area needs to be dedicated to your business and nothing else, creating a clear line between business and personal activities.

You don’t necessarily need to use a full room for this deduction. But, if the room is shared with any personal activities, then you will need to calculate the work area compared to the overall space. The best way to figure this calculation is to determine the amount of space used for work, and figure out the percentage compared to the overall square-footage of your home.

Once you have determined this percentage, then you can calculate the portion of your mortgage, rent, utilities, insurance, internet costs, and other household expenses that should be included on your tax claim.

2. Furniture and Equipment

Whether you are buying a new computer or you need a desk to use in your home office, these expenses can be deductions on your taxes. Since the purchase is for business purposes, there is no doubt that they are necessary to keep your company running.

But, like the home office space, there is a fine line to show that the furniture purchase is for business purposes. For example, if you have the family computer in your office and there are kids in the house, then the IRS could potentially ask whether you are using your business computer for other family activities. Instead, it is best to set up the family computer in a different location and use your company computer only for business-related activities. Regardless of IRS tax rules, this is a good idea anyway.

There are two methods that can be used to deduct furniture and office equipment:

  • Take a 100% deduction the year that the purchase is made
  • Depreciate the purchase by deducting a portion of the expense for several years

Your accountant can help you choose the deduction method that will work best for your situation. The simplest solution is to take the full deduction when the purchase is made. But, there are times when it might make sense to use the depreciation method instead.

If you use depreciation for furniture, then the deductions will be split out over a period of seven years. In the case where depreciation is used for electronic equipment, such as computers, scanners, and copiers, then the depreciation is used over a period of five years.

3. Office Supplies

In addition to the big expenses for computer equipment and furniture, there are often other office supplies that are needed for a small business. Whether you are buying stamps to mail out invoices or you need more printer paper, these expenses can be used as deductions.

Any time you purchase office supplies, keep track of the details so that you can ensure that it was a business expense instead of a personal purchase. Hold onto the receipt and make sure that the transaction is recorded in your accounting software.

If you have a receipt that includes both business and personal spending, then you will need to calculate the portion of the cost specifically related to office supplies. The best solution is to have two separate transactions so that you have different receipts for business and personal.

4. Subscriptions and Software

Most businesses utilize some type of software for accounting or other business-related tasks. These software expenses can be deducted from your taxes. These transactions might be in the form of a one-time upfront payment to purchase a software. Or, many software companies are going to subscription-based payment systems that require a monthly or quarterly payment.

What other subscriptions do you have for your business? These subscriptions might include everything from magazines for your clients to read while they are waiting, or a delivery service that provides copy paper and ink on a consistent basis. Anytime you are paying a recurring fee, make sure to track the expense so that you don’t miss out on the tax deduction.

5. Insurance Costs

If you are self-employed, then you are likely paying for your own health insurance, long-term care insurance, and life insurance premiums. These monthly costs are 100% deductible on your taxes.

There are some limitations that your accountant will need to help you avoid though. For example, if you have a small home-based business, your profits will need to exceed the amount that you are writing off for your insurance premiums.

Also, if you were eligible for other health insurance, such as a plan through your spouse’s job, then you aren’t allowed to write off the full amount of independent insurance costs. That being said, if your spouse also worked for your home-based business in addition to their full-time job, then you can deduct the spouse’s premiums that were deducted from their paycheck.

If you choose to deduct the cost of premiums for your spouse’s insurance coverage, then you need to ensure that equal coverage is available for all other employees.

Talk to your accountant about your individual situation to ensure that you are following the guidelines set by the IRS for insurance premium deductions.

6. Travel and Entertainment

There is good news if you are traveling for business because the travel-related expenses can be used as deductions. But, you need to make sure that your trip is business and not personal entertainment. When you are heading somewhere on a business trip, the full expense of your hotel or accommodations is tax-deductible. You can also write off all of the cost of travel, including the plane ticket, rental car, taxi fees, and more.

Other costs of life on the road can also be fully deducted, such as tipping, dry cleaning, or any other costs that might be essential for daily living.

When it comes to meals and entertainment, you can only take a 50% deduction on these expenses. Keep the receipts, and make sure to record down how the meal related to your business efforts.

7. Car Mileage

Make sure that you are tracking your mileage every time you get in the car for business purposes. If you drive for business, then those miles can be written off. The car trips could be for anything related to your company, including a visit with a client, a trip to the bank, or driving to a conference or event.

You need to keep documentation of your mileage. Put a notebook in your car where you record the date, mileage, and the purpose of the trip. At the end of the year, you have two options to write off the mileage on your car:

  • Total the mileage, and your accountant can do the math based on the annual mileage rate. In 2016, the rate was 54 cents per mile. In 2017, the rate is 53.5 cents per mile.
  • Calculate the percentage of time when the vehicle is used for business purposes vs. personal driving. Then, use that percentage to deduct a portion of your payment, repairs, gas, and insurance.

When you have a home-based business, the mileage can start from the moment you pull out of the driveway. If your business is based in an office, your mileage starts when you leave the office to your off-site destination. With an office-based business, you cannot deduct the drive from your home to the office and back.

8. Contributions to a Retirement Account

Certain types of retirement accounts can be tax-deductible, giving you the benefit of shielding some of your income in a given calendar year. Talk to your accountant for suggestions about the type of account that you should be using. Then, set up an account and make contributions to that account throughout the year.

These contributions can be deducted on your personal income tax return if the contributions are made to a qualifying retirement account.

Get Expert Advice from Easier Accounting

Are you interested in learning more about how you can maximize your tax deductions this year? It is important to have an experienced accounting team help you with your tax filing and ongoing bookkeeping systems.

For more information about our first-rate accounting services, talk to our team here at Easier Accounting. We are focused on accounting services for small business owners, giving you the benefit of working with an accounting team that truly cares about you and your company.

For more information about the services that are available, we invite you to contact us right away: (888) 620-0770