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Tired of doing your own books?
As a sole proprietor or founder of a small business, it can be difficult to navigate the waters of the IRS annually and somehow take maximum advantage of the small business tax deductions available.
Though you can and should utilize the services of tax professionals and software, it is always good to have a basic understanding of how to prepare your small business for tax season. Personal taxes can be complicated enough; filing as a business can be downright overwhelming. But, if you’re willing to sift through the paperwork and read the fine print, you can save a lot of money in the form of tax deductions.
Here are some basics of tax tips on deductions for small businesses.
Many small business owners are afraid to claim home office deductions for fear it will bring the auditor a-callin’. Fear of an audit should never keep you from claiming legitimate deductions. Just make sure you keep well-organized records, and that you can prove your deductions are indeed for business expenses and you’ll be fine. Here are some pointers when it comes to home offices.
If you want more help determining your home office tax deductions, review this form from the IRS.
Up-and-coming businesses need to be up-to-date on their technology, and Uncle Sam does not hinder this. Under Section 179 of the tax code, equipment expenses such as computers, printers, and even company vehicles are tax-deductible, up to a certain amount. Depending on the item, you can deduct the full cost on the year of purchase, or split it between several years.
Business-related software also qualifies under Section 179. So don’t be afraid to get the technology you need to perform necessary business tasks. Just be aware of the amount you can deduct under section 179 because it changes yearly.
Also, if you only have one car, you can’t justify that as purely a business vehicle. Don’t try to use the fact you have a business to pad your personal belongings. If you’re going to purchase a work vehicle, make sure it is only used for work.
Subscriptions to business-related websites and magazines are fully deductible. Combined with the conference deductions (discussed below), there is no reason not to stay informed in your field.
Owning a small business and traveling for work is a dream for many entrepreneurs. Since travel can be necessary for business success and expansion, many of the expenses are completely tax-deductible. Our tax tip on travel is to write off expenses like airfare, hotel fees, car rental and mileage, and travel expenses like laundry costs. Food is only deductible up to 50%, probably because the government figures you would have to eat whether you were traveling or not. Remember these points when deducting business travel expenses:
For more help determining tax-deductible business travel items, visit the IRS website here.
If you pay for your own health insurance as a freelancer, you may be able to claim a deduction for the premiums you pay. This can be a significant expense for freelancers, who often don’t have employer-provided health insurance.
Contributions to a retirement account, such as a traditional or Roth IRA, can be deducted from your taxable income. This is a great way to save for the future while also reducing your tax bill.
If you have insurance for your freelance business, such as liability insurance, you may be able to claim a deduction for the premiums you pay. This can protect you in case of a lawsuit or other legal action related to your business.
When it comes to tax deductions, it’s important to keep in mind that a deduction does not translate to a direct decrease in your taxes owed. If you have a $500 deduction, that does not mean you pay $500 less in taxes.
Instead, it means that you subtract $500 from your earned taxable income, lowering the proportion of your income that you pay taxes on. If you have significant enough deductions, you can move down a tax bracket. However, that depends on your total deductions and current income.
It’s also important to keep in mind that the standard deduction is $12,200 for single filers and $24,400 for married filers. If your total donations and deductions for a year do not exceed the standard deduction, it may not be worthwhile to itemize and deduct donations.
As always with finances, especially taxes, it’s important to keep your receipts and details about the reason for purchases. While doing this for every purchase may seem over-the-top, it’s easy once you get into the habit of it. It will also save you a lot of grief if you get audited, and it will help you keep peace of mind that your finances aren’t going to get your business in trouble. The last thing you need is a pile of debt to the IRS.
It’s never profitable to leave money on the table. The cost of running and maintaining a business is high, but many of those costs can be reduced by filing your taxes knowledgeably. Do your research, take the time to do your taxes correctly and completely, and put the money you save back into your business.
If you’re thinking about getting rid of your car, you have a few options to do so. You can try to junk or recycle it if it’s in bad condition. You can try to find a buyer if you think someone would be interested in it. But if you’re feeling generous, you might decide to donate your car to a charity in need.
Hundreds of thousands of Americans donate their cars every year to charities big and small.
From helping low-income families get affordable transportation to providing funds for your local public radio station, there are countless ways that donating your car can help.
What makes vehicle donation such a popular avenue to choose? Factors include ease of disposal and the good feeling that comes from doing something charitable.
However, there’s a second benefit as well: if you donate a car correctly, you can claim a tax deduction when you file.
What Taxable Benefit is There for Donating a Car?
How much an individual benefit from a car donation depends heavily on their diligence throughout the process. If you donate your car and the charity sells it for less than $500, you can deduct either its fair market value or $500 — whichever amount is smaller.
If the charity you donate your car to sells the vehicle for more than $500, you can deduct the full total they sold the car for, but you’ll need to do more paperwork.
Charities can sell vehicles at auction, but they can also use them for internal purposes or provide them to people in need of low or no cost. If they sell the car, you can claim a deduction for the full amount that the car is sold for on your taxes, and the charity gets those funds to add to its coffers.
If they keep it for internal use, donate it or sell it to someone in demonstrable need at a reduced price, you can claim the fair market value for the vehicle instead of whatever it actually sold for. The fair market value for the car might be higher or lower than its sale price.
Compared to selling a car privately or to a junk car service like CarBrain, a vehicle donation typically doesn’t provide the same financial benefit. One of the most popular reasons people continue to choose to donate cars is the simplicity of the process.
Selling a car can be frustrating and time-consuming, with tire-kickers and hagglers slowing down the process. With car donations, the process is hassle-free and extremely fast. The organization receiving the car does virtually all the work. All you have to do is claim the deduction on your taxes.
Income Tax Receipt
Despite getting no cash in hand whatsoever from a car donation, donors can reduce their income tax using the car’s declared value or final sales price. For deductions of more than $250, it’s important to get documentation from a charity acknowledging the donation of the car.
What’s Required When Donating a Car
Each party has responsibilities in a car donation that is mandatory.
What to Watch for in a Car Donation
Tired of doing your own books?