Listen, I won’t sugarcoat it: filing taxes… sucks. Even though I love nerding out on money stuff, I can’t lie to you: I hate tax season. Even when I get money back from the IRS, I still hate it, because a tax refund isn’t free money from the government, it’s exactly what it implies: it’s a refund! It’s the IRS giving you back money they over-borrowed and are now playing nice and giving it back. But today is not the day for that rant…
Instead, we’re digging into my top five tax hacks for small business owners.
1. Incorporate your biz.
Make sure you are using the best corporate structure for the type of business you have. From LLCs to S Corps, there are several types of business structures available to owners. They each come with a different tax burden and liability risks. You need to know exactly what your profits are to determine what type of structure is best for your business. It’s also important to know that as your business grows and evolves, different types of business structures may become more efficient. It’s worth checking with your accountant from time to time to make sure you are using the most beneficial structure to save you money.
2. Get your home office on.
The good news is: you can claim your home office! The bad news is: you can only claim your home office. So unless you happen to be a TV reviewer, you can’t claim your couch. It needs to be a dedicated workspace. There’s a simple way to claim this deduction which is to just figure out the square footage of your office and multiply the square footage by $5. For most people, that should be sufficient. But if you live in a high-cost-of-living area like LA, or if your workshop is over 300 square feet, it’s worth checking to see if you should take your deduction in the more complicated way. Again: this is a good time to phone-a-friend.
3. Take Uncle Sam on your travels.
Travel is a qualifying business expense, even if you do mix business with pleasure. Hotels, airfare, rental cars, meals, and working drinks are tax deductible. But don’t get it twisted: to expense the entire vacation, it must be entirely business. For example, attending a two-day seminar in Florida or visiting a client in California, would be qualifying travel.
When you mix business and personal trips, you can only deduct the portion that is for business. That means that if you head to Disney World after that seminar in Florida, you can only deduct airfare and the lodging for the two days of seminar fun. Anything after that is on your dime.
4. Give back.
Most people know that you can donate to charity and take a deduction. And many small business owners do just that through fundraising or charitable work in the community. It can be a great way to help others, raise your brand’s profile and save yourself money on taxes. But did you know that instead of donating goods or money to a charity you can donate stocks? That’s right! Plus, you get to claim the current marker value of the stock as well! So if you paid $20 a share and it’s now worth $30 you can get a $30 deduction. This is a very savvy way to get more value for your deduction.
5. Give your retirement account some love.
Now, so far we’ve talked about deductions but this final tip is a tax credit. And Nictionary note for those who need the refresher: deductions reduce the amount of income you owe taxes on. But credits reduce the amount of taxes you owe. If you or your employees don’t have retirement plans you can receive a tax credit for setting up qualifying plans such as 401(k) or 403(b). You can also get credit for the administrative costs you incur for educating your employees about the new plans. To claim these credits, you need to file an 8881 form. This is a great way to help your employees plan for their future and reduce your tax burden.