Build Wealth By Legally Reducing Your Taxable Income!
You may have many questions about what is deductible in your business. Well, if you are self employed, a lot of things are! All of your supplies, health insurance, beauty items, space rent, etc, is deductible if you own your own business. You can even deduct part of your home expenses if you conduct business in your home.
Other items, such as computers and other large or expensive items are called "depreciable assets". You can deduct these items over time. Most business owners also have the option to take additional depreciation, and there are many ways to qualify for additional tax breaks. Keep track of all of these big-ticket items on a spreadsheet, or a journal, so you have a good record of what you can depreciate.
Tax Tips for Small Business Owners
1. Open a Separate bank account for your business. This is so important! Keep your business deposits and expenses separate at all times-it makes things so much easier!! When you want to take money out for personal use, just write yourself a check and put "owner withdrawl" in the memo line. That way, you keep track of personal expenses. Charge all your business expenses to a business credit card. You will be so happy at the end of the year that you did. If everything in your business is done under your own name, then you don't need anything special to open an additional account for your business.
2. Keep all your receipts-in a shoebox, or Kleenex box, whatever. Keep proof of your expenses, and the IRS will never have a reason to question your deductions. Just write "business" on the receipt.
3. Don't be sneaky with cash! The IRS has a can obtain warrants to examine all your bank accounts, credit accounts, and assets if it believes fraud has occurred. This is how most people get caught. Don't deposit huge sums of cash into your personal bank account and then try to explain it later when the IRS asks you where you got it. It's not worth it. Currently, some of the criminal penalties for major tax fraud exceed penalties for even violent crimes, like assault.
4. Talk to a tax professional about legal ways to reduce your taxable income. If you can pre-pay some expenses at the end of the year, and throw your income into a lower tax bracket, do it!! this is a legal way to have your cake and "eat it", too.
5. Don't Forget to File on Time! Even if you don't have the money to pay your taxes, always file on time. I usually recommend that you file timely, and send a small check, whatever you can afford. Then, when the IRS cashes the check, you have proof that they received your return, as well as your payment. The penalties for filing late are much greater than if you file on time, and make a small payment. The IRS is much more forgiving with taxpayers that file, even if they don't have the money to pay. The IRS will allow you to make small payments over time. Just keep track of your payments, and see a tax professional if it seems too overwhelming.
Related Tags: money, wealth, business, tax, tax tips, businesses
Christine P Silva, BA, CRTP, lives in California with her husband, two children, and three spoiled cats. She earned her undergraduate degree from San Jose State University, and her advanced accounting certificate and California tax registration from Cosumnes River College. She is the founder of the Sacramento Volunteer Tax Preparation Clinic, a free service offering tax assistance to low income and Spanish-speaking taxpayers.
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