5 Tax Tips To Help Business Owners Save MoneyMar 03, 2021
Having an extra $12,000 to spend each year would benefit anyone, including small businesses, entrepreneurs, and freelancers who may be navigating financial uncertainty on a daily basis. In today's video Megan Marsh sharing with us, 5 Tax Tips To Help Business Owners Save Money.
When you’re a business owner, you are your business. That means even on your personal time, you’re thinking about your company and its needs, even if it’s as small as grabbing a pack of pens for the office while you’re out buying groceries. Or some candy for the reception desk. Or some small trinkets to include in gifts to clients.
These purchases may not seem like much in the moment, but you’re creating a financial and accounting nightmare for yourself, your business, and your taxes. It’s just one example of a place where you can save yourself time and money by creating systems and implementing new policies. So if you want to keep more of your hard-earned money, check out these five valuable tax tips.
Create a System for Organizing and Storing Your Documents
No matter how small they may be, businesses are complicated. As an owner, part of your responsibility is keeping finances on track, so when it comes time to pay taxes, nothing falls through the cracks. But, that involves a lot of moving parts, such as bank statements, credit card statements, check registers, and interest statements. You want to make sure all those documents are accounted for as soon as you receive them.
An easy first step is determining where you want to store your documents—both digital and hardcopy versions. A dedicated, secure location for both types of documents will save you time, so you’re not rifling through piles of papers or random computer folders looking for what you need.
Once you’ve tackled the question of where, it’s time to move on to how you’ll organize your documents. One method to adopt is a standard naming convention. That means all documents and folders follow a similar formula for how they are named. Investing the time upfront to create a naming system will save you headaches later come tax time.
Practice Good Bookkeeping
Keeping track of your finances is imperative for your business’ financial health, so instituting a good bookkeeping system is key to supporting that effort.
As a small business owner or freelancer, it might be tempting to wing it and not establish an accounting system for your enterprise. That’s a huge mistake that could cost you money in the long run. You need to set yourself up for success.
One option is to establish a system using software or apps. While some businesses might lean on more robust accounting software such as Quikbooks, there are plenty of simpler, less costly options for entrepreneurs and freelancers. Apps such as Mint or Personal Capital can be linked to your business account and automatically pull data from your statements.
Another option is to outsource your bookkeeping to another trusted company or independent contractor. You’ll still need a system for organizing your financial documents, but the burden of tracking finances can be placed on another professional’s shoulders.
Do Your Research and Advocate for Yourself
It’s easy to assume your accountant has your best interest in mind when it comes to finding tax breaks and write-offs for your business. But accountants are not perfect and may not catch everything. They also need complete information from you in order to give you the best service possible (which is exactly why you want to follow the first two tips, so you have everything you need in order when you hand over financial documents to your accountant).
In short, know your tax returns and expenses, so you can catch mistakes and advocate for your business’ best interests.
Keep Your Personal and Business Finances Separate
For many people who are self-employed, it seems easier to combine their business and personal finances than to keep that spending separate. However, what they gain in perceived convenience they lose in liability.
Keeping your personal and business finances separate will help you stay organized and avoid costly mistakes that stem from losing track of expenses and revenues. It also will help keep your debt-to-income ratio in check. When you’re depositing and withdrawing from one account, all your business debts are intermingled with your personal debts. Keeping them separate gives potential lenders a more accurate picture of your business’ financial health and your personal ability to pay back loans.
Know Your Write-Offs
Remember that extra $12,000 we mentioned? Knowing what you can write off for your business has the potential to save you some serious cash.
There are several types of write-offs you want to be proactive about and educate yourself about. The first is a home office. If you have a home office, you can write off part of your utility bills and part of your home maintenance costs. The calculation is based on the size of your home and office. If you live in a 1,000-square-foot apartment and your home office takes up 333 square feet, you can write off 33 percent of your annual utility bills. Remember to provide these costs to your account, so they can include them in your tax return.
Second, if you’re a sole proprietor or freelancer and have underage kids, you can pay them to work for your business. Whether it’s stuffing envelopes, running social media, or cleaning, you can pay your children and their income is not taxed, saving you money on your overall tax bill.
Last up is write-offs regarding your vehicle. Most people know you can write off mileage, but there is an extra perk you might not know about: Section 179 equipment write-offs. Section 179 allows you to write-off the entire cost of a qualifying equipment purchase (including vehicles) in your tax filing that year. For example, if your income is $100,000 and you purchase a Section 179 vehicle for $30,000, your income will only be taxed at $70,000.
When it comes to any write-offs, it’s best to plan ahead and research which ones might be beneficial to your business and reduce your overall tax bill when it’s time to file.
These were our 5 Tax Tips To Help Business Owners Save Money. Do you know more tips? Share them with us in the comments below!