Small business owners have many hats. They tend to fill all positions, from CEO to gatekeeper. Business owners must also understand the business tax and the complexities involved in recording funds in and out of the business. They must know what to track and what is tax deductible.
Unlike the personal tax deductions that are restricted and listed by the US Internal Revenue Service, it is not clear what a company can deduct as expenses. For some people, other people may not have considered the obvious tax advantages, such as using private vehicles for business.
There are many lists on the Internet that provide examples of deductions for business owners. Some deductions are very creative, such as renting your home to your company to participate in the annual shareholders’ meeting, while other deductions are more obvious, such as home office deductions. However, these long lists are unlikely to be remembered by business owners, so here are five key tips to make sure you never miss out on tax relief.
Using a corporate Checking Account
The first thing any business owner should do is separate all corporate and personal funds. This is not only good business practice, but it is also highly recommended, and often required, to keep your business entity separate from you. When all your business transactions are concentrated in one place, you know they will be accurately tracked and deducted.
Separate Credit Card
If you are just starting a business, obtaining a business credit card can be a challenge. Sometimes you can’t just rely on cash, instead, you have to use a personal credit card. In this case, from the point of view of tracking and tax reduction, it is best to designate a personal credit card strictly for business purposes. This way, you know that all card expenses are business expenses and you only need to pay for the card from your business checking account.
If you have any questions, please follow up
If you are not sure whether the transaction involves taxes, it is best to follow up and ask your accountant. You can always determine the tax impact later. If you don’t track transactions, there will be no data to help you determine how to handle transactions when paying taxes.
Take a touchstone test. An easy way to consider business expenses and tax deductions is to ask yourself, “If I don’t own this business, would I bear these expenses?” If the answer is no, then the cost will probably be deductible. If yes, they can still be deduced, but more review is needed to determine this.
Know what is not deductible
Although the list of tax-deductible business expenses seems endless, the list of expenses not allowed by the IRS is much shorter. Knowing what is not deductible, like personal beauty and clothing, is much easier than what is not deductible.
The best advice is to keep track of everything. You don’t need to remember all the tax rules – this is the job of the tax preparer or accountant. Most companies lose a lot of tax deductions, not because they don’t know it, but simply because they don’t keep track of everything. Keep in mind that while it may be tedious when savings roll in, it will pay off at tax time.
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