Do you know how to save on taxes through small business deductions? A small business owner can save hundreds of dollars on taxes through business-based tax deductions. Whether you calculate your own taxes or consult an accountant, awareness of the more important tax deductions can inform your daily practice of saving receipts and making journal entries. Time knowledgeable record keeping can save a business owner thousands of dollars in taxes.
Start Up Costs
New businesses can recover some of their start-up costs through tax deductions. A maximum of $5,000. is allowed the first year and the remainder can be amortized over 15 years. Once again there must be records of purchases such as store receipts. The IRS recommends keeping a log book or journal of all daily expenses.
Bad debts can be deducted depending on whether the business provides a product or service. Cost of goods sold but not paid for are deductible provided the business sells products. The same benefit is not available to you if you provide services. Tax deductions are not allowed for time allocated to a client.
Current simplified deductions versus traditional accounting
Home Office Deductions
Many deductions remain the same year after year. With others, the IRS makes minor changes each year. This year the IRS has allowed a simplified home office deduction of $5. per square foot. Some accountants are advising a client can save additional dollars with the more traditional method of dividing the home office’s square footage by the home’s total square footage and then using the percentage to account for many of the expenses of the house such as mortgage interest, utility bills, and home depreciation.
For 2014 the standard mileage rate for business-related car costs is 56 cents per mile. The rate for 2013 was 56.5 cents per mile. As with the home office deduction, the business owner can save more by dividing the business-related miles by total miles driven and then apply the percentage to all car expenses, gasoline, repairs, and maintenance such as car washes. A business owner can save hundreds of extra dollars with this method which is facilitated by careful record keeping.
Other expenses include phones, utilities, postage, health insurance, auto expenses, Internet access, business travel, business meals and entertainment, professional services and consultants, business cards and stationery, retirement plans, interest payments on business credit cards, education, office supplies, and office furniture.