Business Tips

7 simple small business tax tips to save you time and money

Ready or not, it’s that time of year again. Tax season. For small business owners, it can be a stress-inducing time. But it can also be a big opportunity to save—and the key to saving is not paying more than you owe. So we worked with tax expert and Sideline user, Rebecca Martin of Simply Financial, to put together 7 easy tips that could save you thousands of dollars and countless hours.

1. Use tax software

Doing your taxes, just like many other parts of life, is made easier with technology.  So if you haven’t already, consider one of the many services that let you file your taxes online. Digital tax returns are not only faster but less prone to errors. Many online tax prep services also offer audit protection and can help you maximize your return in more detail than we can get into here.

Companies like TurboTax, H&R Block, and Taxslayer are popular. But it never hurts to do your own research or ask fellow small business owners what they prefer.

2. Keep tabs on your tabs

Unless you keep all of your receipts, it’s hard to remember that business expense from last June. Tracking your spending is always a good practice, and many of those purchases are tax-deductible, which offset your taxable income. Common deductions include office supplies, computers, meals with clients, and even marketing expenses like business cards. You can also deduct the cost of your communication or phone services (Sideline included). The IRS lists plenty more because more often than not, any necessary expense that’s appropriate for your trade is considered tax deductible.

How you track your business expenses is up to you. A shoebox or folder full of receipts does the trick. Or for a more modern solution, software such as Quickbooks or 1tap receipts lets you scan and organize receipts from your phone so it’s easier to claim those expenses later.

The IRS lets you deduct up to $5,000 in startup costs. 

3. Let startup costs bring down the tax bill

Writing off business expenses as you go is one thing, but what about the money it took just to get started? For that, the IRS lets you deduct up to $5,000 in startup costs. So if you’re newly-open for business, don’t let this one slip through the cracks. Examples of common startup costs include consultant fees (lawyers/ accountants), licenses, permits, market research, advertising, office space, and tools or equipment.

If you spent over $5,000 to start your business, fear not. You can roll over the rest of your expenses for the next 15 years. You can read the full, albeit yawn-inducing, detail from the IRS here.

4. Track your car expenses

The mileage deduction is a great way to offset the cost of your personal vehicle if you drive for work. The rate per mile is determined by the IRS and varies from year to year. That rate was 58¢ in 2019 and is 57.5¢ for 2020. So even if you’re only logging a few miles each day, that can really add up.

The IRS considers different types of trips worthy of deducting mileage. But generally, travel between different workplaces or customer visits are the most common. So if you go to your clients (home service, real estate, landscaping, pet sitting, etc.), be sure to log those miles. All you need to do is record the date, mileage, and purpose for each trip in a mileage log book or through a service like MileIQ. That way you have a detailed record come tax time.

Remember to keep track of those rent and utility invoices throughout the year.

5. Write-off the office

Like other business expenses, if you rent out a physical store or office, that rent is tax-deductible. The costs to keep that workspace open such as power, water, cleaning, and maintenance are also deductible. So remember to keep track of those rent and utility invoices throughout the year.

Even if your office is at home, you can save big by taking the home office deduction. Since many small business owners and sole proprietors work from home, this is a common, but somewhat touchy deduction to take. Touchy due to the IRS’ requirements, which state that the part of your home must be for, “regular and exclusive use,” and the, “principal place of your business.” That means your home office or workspace can’t also be a nursery or spare bedroom. And you can’t write-off your kitchen by working at the kitchen table from time to time. Bear in mind: You should consult a tax professional (or use tax prep software) to determine if you qualify for this deduction before taking it.

6. Save for retirement

When you work for yourself or have your own small business, it can be challenging to find extra money for retirement savings. But every penny counts. And saving for later helps you save now. That’s because contributions to most common retirement plans lower your taxable income. For example, contributions to an IRA or 401(k) plans are subtracted from your total taxable income for the year. There are contribution limits that vary year to year so it’s helpful to dig a little deeper into the IRS’ Information for Retirement Plans to see what will work best for you. Your present and future self will thank you.

It’s your TAXES, your TIME, your MONEY! It’s VALUABLE, protect it.

7. Protect yourself

Each year, many Americans fall prey to deceptive schemes and practices orchestrated by con-artists and (unfortunately) shady tax preparers. To protect yourself, be attentive and ask questions. If something feels off, then go with your gut, stop, and get a second opinion. We shop for everything else, so why shouldn’t you get a second look at your taxes? Use the IRS website to find an authorized E-file provider in your area.

Also, it’s important to remember that the IRS doesn’t initiate contact with taxpayers by email, text messages, or social media channels to request personal or financial information. Don’t fall for calls requesting payment and don’t give out your financial information.

It’s your TAXES, your TIME, your MONEY! It’s VALUABLE, protect it.

Obviously, the best tax practices are the ones that work for you and make sense for your business. The tips above are meant to introduce you to some of the basics. Tax code, by nature, is complicated. So it’s always a good idea to consult a tax professional before taking a deduction you’re unsure about.
If you’re looking for more tips to help your small business, you might like some of our other blogs.
Header Image: Pekic via iStock

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