Tricks Tax For The Owner Of Small Business

Our firm does not do taxes, even though I did them for 12 years. When I began my practice that was a service I simply did not want to offer. However, we do partner with CPAs and other tax professionals to be certain that the guidance we provide our clients is in line with the advice their tax professional give them.

As part of that guidance, there are a few tax advantages that most business owners either don’t know about or simply don’t take advantage of. There are also some “deductions” that should be avoided due to misguided tax information. Here is a list of the five most common.

Track All Expenses Consistently

Track all of your expenses including the ones you pay for personally. Business owners always ask me “what about the stuff I paid for on my personal credit card?” Yes it is all deductible; you just need to get it on the accounting records and account for it. Keep in mind that the credit card is personal so don’t add that account to your chart of accounts. They will count as owner or shareholder contributions. TIP: Record these charges monthly so you don’t forget at the end of the year.

Avoid Money Leaks

As a small business owner you are sometimes faced with cash flow issues. As a result you get behind on paying your bills and your taxes. While your vendor may not assess late fees, you better believe the IRS will in the form of penalties and interest. And these my friend are non-deductible. Nope not even the interest portion. TIP: Plug this money leak by paying your taxes on time and use those funds on an expense that is deductible.

Maximize Retirement Contributions

Most small business owners are so busy working in their business that they never stop to think about what they will do once they retire. I’m not even sure you think about retiring at all. But the fact is you will — one day. So you have to sure to have some sort of nest egg. There are several retirement plan options that will allow you to put aside some funds tax free for your retirement and they are all tax deductible to the business. Yes you can have your own company retirement plan. Cool right? TIP: Contact your tax advisor and your financial advisor to discuss retirement plan options.

Expenses Paid Personally

I cannot say it enough – stop co-mingling your personal expenses through the business. They are not tax deductible and us accountants — we know when you try to do it. Believe it or not we are smarter than the average bear. TIP: Don’t co-mingle.

Section 179

The IRS allows you to expense the purchase of a major fixed asset all in the first year instead of depreciating it, baring certain qualifications. You can deduct up to as much as $500,000 and reduce your taxable income to zero. TIP: Hold off buying any and all equipment until December if you can so you can buy just enough and not too much.

What tax tips have you taken advantage of to help keep more money in your business?

How To Cut Your Tax Bill

For many people, volunteerism is about more than simply doing something nice – it’s about enriching peoples’ lives and making the communities where we live and work a better place. But, did you know your stewardship and goodwill may also help you reduce your taxes? Gifts given to charity and other expenses related to volunteering may be tax deductible. For the avid volunteer, the savings could be worth the effort to track expenses related to your charity work.

Transportation expenses

While you cannot deduct the time you spend on the road driving to and from volunteer events, you may be able to write-off related expenses, such as parking, tolls and gas directly used in your charity work. It’s important to note that you cannot claim costs for car repairs, routine maintenance, registration fees, insurance or depreciation.

If your charity work requires you to travel, you may be able to write-off the amount you spent on public transportation, i.e., bus and subway tickets or taxi fare, airfare, meals and accommodations.

Generally for all travel and driving expenses, the primary purpose of the trip must be to perform services for the charitable organization. A deduction may not be allowed if the trip also includes a significant amount of personal, recreation or vacation activities.

If you’d like to include volunteerism as part of your tax strategy, keep reliable written records of your expenses, including the total amount incurred. With regard to driving expenses, keep track of the reason you drove and the date you used your car for the charitable activity.

Additional out-of-pocket expenses

If you need to make a purchase to perform your volunteer work, you may be able to claim the purchase as a tax deduction. For example, a committee member might deduct the cost of supplies needed to host an auction. Other expenses could be deductible depending on your situation. As a best practice, keep good records and review them with your tax advisor.

As you tabulate your costs, be aware that the amounts must be:

· Unreimbursed. (If the organization has repaid you for an item, you may not claim it on your tax return.);

· Directly connected with the volunteer services;

· Expenses incurred only because of the volunteer services you gave; and

· Unrelated to personal, living or family expenses (For example, childcare is not an eligible expense you can deduct.)

Financial contributions

Generally speaking, cash donations you make to a qualified charitable organization are deductible if you keep proper records and itemize deductions. Property you donate may be written off as well based on the fair market value of the asset at the time of the donation. Note: Special rules may apply to certain contributions.

If you receive something of value from a charity, such as a benefit dinner or an auction item, you need to subtract the value of the item from the total donation to determine the deductible amount.

As you prepare for tax season, there are a few important things to keep in mind. For you to write-off volunteer expenses or donations to charity, you must itemize deductions on your tax return and keep reliable written records of anything you intend to claim. Also note that you cannot claim a deduction on your tax return for the value of donated time or services. If you’re considering deducting volunteer-related expenses or donations on your tax return, meet with a tax advisor to get his or her perspective on your financial situation. You may also refer to IRS publication 526 for guidance on charitable deductions.