The end of the year is just a little over three months away. Some forward-thinking small business owners are thinking about end of the year taxes while others will probably wait for the last moment to gather their information.
One of my clients is a virtual assistant. She offers a special solution to her non-organized clients – Shoe Box Tax Receipts Special. What she does is to have her clients or new clients bring all their receipts in a shoe box. Then she will separate them into the necessary piles and consequently tax deductible business expenses.
I keep my receipts sorted on a monthly basis and entered into my financial software program. Then, at the end of the year, I generate a report to summarize the total per category and send that document along with along forms to our accountant. My tax preparation time is less than one hour per month. This one hour a month saves me hundreds of dollars in accounting fees.
Currently, according to the U.S. Census Bureau, 70 percent of all small business owners are considered non-employed. These individuals usually work out of their homes. Another contemporary designation for them is Single Office/Home Office (SOHO).
Some of these small business owners probably still employ the shoebox collection method of tax records. This shoe box method is not only inefficient and ineffective; it probably misses some key tax savings. I recently discovered these tax tips from Invoice2Go. With tax time soon approaching, you may wish to review this list and begin to ready your tax records now rather than later.
1. Auto deductions including mileage from traveling from your home office to a work related designation. (See Tip No. 10)
2. Home improvements including landscaping as part of the home being used for business.
3. Home insurance respective to the percentage of the home being use for business. This deduction also applies to utilities, rent, mortgage or even interest on line of credit if it can be applied to the home business.
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4. Health insurance contributions along with medical bills not covered should be recorded.
5. Automobile insurance based on the percentage of car use for business based on mileage.
6. Employees must be reported and their income taxed if you have employees.
7. Independent contractors or freelancers are now covered under a relatively new program where the IRS will only charge 1/10 of the taxes for one year for 1099 freelance employees – interest, penalty and audit free.
8. Veterans who have been unemployed for more than four weeks receive an IRS deduction.
9. Mileage (see No. 1) requires documentation. There are mileage log books available as well as apps. I have been using the mileage log books for 18 years and the cost of $3 is quite reasonable.
10. Business-related trips from mileage, transportation, lodging, food and tips may be another tax deduction. Records of these trips are essential. What I do is grab a business-size envelope and put all receipts into it when traveling. Upon returning home I enter the appropriate receipts and file them. This process usually takes less than 15 minutes.
11. Interests on a loan or credit card used to finance a business purchase can be deducted provided you keep the records.
12. For those small businesses that sell physical goods, the cost of unpaid goods can be deducted. Unfortunately unpaid invoices for services cannot be deducted.
13. Education expenses that are applied to furthering your own skills for your work can be deducted. Buying books or online webinars may also be included in your education.
14. Business services ranging from PayPal fees to Internet fees to accountant fees can also be deducted. Also do not forget office expenses, computers, and ink for the printer or any software purchases made for the business.
15. Working lunches to entertainment are also deductible. Making notes on the receipts or in the software program is recommended.
The U.S. tax code is complicated and changes annually. By being proactive with your tax record keeping, you can reduce end of the year stress for yourself and your accountant. Finally, remember these actions can potentially even reduce your accounting bill.
Leanne Hoagland-Smith is an author, speaker and executive coach. Her weekly column explores issues that impact the bottom line of firms with fewer than 100 employees. She can be reached at 219-508-2859.