As a small business owner, managing your own taxes can seam… well… taxing! The truth is, the tax code is your friend and it’s really not as complicated as you would think. I’ve run businesses myself and know enough other business owners to have raked in a fair amount of knowledge about what to do and what to avoid with your taxes. The last thing we want is to pay more than we have to, right? Here are 10 things to consider.
- Mileage – Currently you can write off $.55 per mile on business-related travel. However, most people just think about those long out-of-state meetings and trade shows and forget about all the little stuff. Whether you work from a home office or have a retail shop, if you frequently do work errands, making deliveries and driving back-and-forth between meetings, you can write off nearly all of those miles. Think about it, 2 miles equals $1. Multiply that by 365 days in the year, that’s nearly $400 back into your pocket! Just be sure to keep very clear records. Write the date down, reason for traveling, and then the distance going both ways. It’s also recommended that on January 1st and December 31st you note the mileage on your vehicle odometer.
- Business Meetings – When you get lunch or coffee with an employee, client, or consultant, as long as you’re not just talking about football, you can write those off. Again, it all adds up, every $2 cup of coffee at a time. Save your receipts and you’ll get back about 50% on your taxes. The only thing they don’t allow is alcohol.
- Office Snacks – Did you know you can store coffee and snacks in your office and write it off as a business expense? As long as your office fridge is separate from your home kitchen and you’re not consuming it during off-hours, it’s a business expense. Most packaged foods that don’t require cooking are acceptable, like crackers, chips, and granola bars. Sorry, but storing raw hamburger in the office fridge probably won’t count.
- Health Insurance – If you are a sole-proprietor or independent contractor, in most cases you can write off all your medical expenses and health insurance premiums from your personal income taxes. This can save you thousands of dollars!
- Rent – If you work from a home office or garage, measure the square footage of every area that’s solely for work purposes. Let’s say it’s 10% of your total home and your rent is $1200. You can write off $120 per month ($1440 annually)!
- Utilities – The same formula for rent works for your utilities. If your office takes up 10% of your home, you can write off 10% of your utility bill every month.
- Mobile Phone – It can be difficult to determine exactly how much time you spend talking to customers or family, in most cases you can write your entire bill off. If you’re like me it seems like every call is either a customer or someone wanting to hear about how business is going anyway. Now if you have two separate phones, one for work and one for personal, obviously you can only write off the work phone.
- Office Decorations and Improvements – The next time you buy a sweet Oxford Pennant to tack on your office wall, save the receipt. Any art you buy for your office can be written off in full. Also, if you put in new hardwood floors or do any painting, that too can be written off.
- Entertainment – Have you ever wanted to take a client to a baseball game for a more laid-back, interesting meeting? Well, you can do this and write off 50% of all your expenses: tickets, popcorn, and hot dogs included! As long as you’re talking business and not about your sick kitten, you’re in the clear. Beer and souvenirs won’t qualify however.
- Your Accountant – If you only have yourself and your best friend on payroll, you can probably save the monthly accounting fee by handling the work yourself. Likewise, with online services like TurboTax, which is virtually free, you can save hundreds of dollars by doing the year-end taxes yourself. Small businesses are often under the impression that mistakes fall on the accounting firm. The truth is, you are fully responsible for all your mistakes and theirs. Do the work yourself for as long as you can, not just to save money, but to avoid accounting errors which can lead to penalties and unnecessary worrying. Nothing against accountants, but they have a reputation for blazing through all the papers and skipping over critical details. One sad year a friend of mine discovered he owed the IRS $50,000 more than expected due to a whole lot of minor mistakes the accountant made throughout the year without his knowledge.
- Auto Loan Interest – In come circumstances you can write off the interest each month on your auto loan.
- Donations – Did your business make a donation to some treehugger organization? You may be able to deduct that.
- Education – If you took any classes during the year it’s possible to deduct it from your personal taxes.
- Pets – Does your dog have an active role in your business? Maybe he guards the shop when you’re gone or he’s a social media icon! It’s difficult, but very possible to write pet expenses off your taxes.
I have a degree in Marketing, not Business Law or Accounting. I am lending tips based on personal experiences and conversations I’ve had with other business owners. I’m not claiming that everything written on this page is either 100% accurate or still currently acceptable. Please seek other professional advice, a second opinion, and then a third opinion.