Filing your taxes is one of the least exciting parts of owning your own business. However, your small business taxes can be extremely painful without proactive tax planning. Here are a few tax deductions that might help you keep more of your hard-earned money.
1. Small Business Retirement Contributions
Retirement contributions are one of my favorite tax planning tools for business owners. Why might you ask? Because you can often make most or all of the contributions after the end of the tax year. If you get a surprisingly large tax bill from your accountant, you might be able to top up your small business retirement plan to get some valuable tax deductions and reduce your overall tax debt for the prior year.
As an entrepreneur, you have more opportunities to be proactive about retirement and tax planning. Depending on your taxable income and the nature of your retirement savings, you can significantly reduce your current tax liability each year. Some of the most common pension plans for small business owners are the SEP-IRA, Solo 401(k) Plan, and Cash Balance Pension Plans.
There are rules about how much you can contribute to each plan. The amount depends in part on your age, income and business structure. To give you an insight, I am currently helping a business owner secure nearly $600,000 in income for fiscal year 2021 with a combined profit-sharing and cash settlement plan while enhancing the client’s future financial security in retirement.
2. Health Insurance Premiums
You may have noticed that health insurance is expensive. If you’re self-employed, you may be able to deduct the money you spend on health insurance premiums for yourself, your spouse, and even your loved ones. Don’t miss out on this valuable print.
3. Marketing your business
Business owners can get tax deductions on money they spend to get people to see their business. This can take the form of networking, Search Engine Optimization (SEO), your website, conferences, or even traditional marketing and advertising.
4. Business Related Insurance Premiums
Most businesses require insurance, and some may need to have multiple types. This may include errors and omissions (E&O), professional indemnity insurance, civil liability insurance, and workers’ compensation insurance. These are in addition to insurance to protect your business locations and property. These insurance premiums are deducted separately from your health insurance premiums.
5. Legal and Professional Services
You can’t be an expert on everything. Even if you could, who has the time to do it all? When you delegate responsibilities, take advantage of tax deductions for your legal and professional services.
Do you pay for accounting? tax preparation? management consultant? Lawyer? HR staff? corporate financial planning? All of these time-saving services can add up. Fortunately, if your accountant can deduct these expenses from your business income, the net cost can be a little lower.
6. Deductions for the Ministry of the Interior
To qualify for the home office deduction, a part of your home must be “used exclusively and regularly for your trade or business” and that part of your home must be your principal place of business; a place where you meet or do business with patients, clients or customers in the ordinary course of your trade or business; or a separate structure used in connection with your trade or business.
This deduction can be valuable, but make sure you keep a record of expenses and the part of your home that you use solely for business.
7. Car expenses related to your business
If you only use your vehicle for business purposes, you can deduct the cost of using that car or truck. This can be a combination of car lease payments, interest on your car loan, gas, parking, maintenance, and even repairs (in some cases).
If you use the vehicle privately and for business, you can only deduct the business portion. If so, you should keep records to justify the level of business use. This could include a mileage log highlighting when you use the car for work.
8. Stationery for your business
This may sound obvious, but many people miss this area. When you order paper or ink cartridges from Staples or Office Depot, you pretty much know you’re buying office supplies. When you’re strolling through a destination
9. Licensing and Taxes for Your Business
They are likely to be tax deductible if you have to pay taxes or royalties to run your business. This can even include property taxes or property taxes that you pay on commercial real estate. It may also include costs for professional licensing.
10. Your cell phone
Many successful businesses require the use of a cell phone. While at this time a mobile phone is necessary for most of us. For many entrepreneurs, it can also be a tax-deductible expense. When I first started out as a financial planner (many, many years ago), the rule of thumb was to subtract the business portion of your phone usage; However, nowadays it is common for self-employed people to deduct most or all of their cell phone bills.
11. Self-Employment Tax.
You’re probably familiar with the payroll taxes that are deducted from your Social Security and Medicare paycheck each year. Collectively, these payroll taxes are known as FICA (Federal Insurance Contributions Act). What you may not realize is that there is an additional tax on self-employment income called SECA (Self-Employment Contributions Act).
If you are an employee, your employer pays the SECA part of the income tax. If you own your own business, you have to pay both sides of the income tax; super funny right? The only good news here is that you get a tax break for what an employer would normally pay. Not as great as not having to pay, but better than nothing.
I know that chasing tax deductions isn’t very exciting for most people. But think how much less you’d have to work if you could drastically reduce your tax bill every year? In order to get the maximum tax deduction for paying the minimum taxes, you must be proactive in tracking all of your tax-deductible business expenses. Tax planning and your tax planning expert are your friends.