It’s not too early to start thinking ahead and begin planning to ensure you don’t miss a possible business tax deduction on next year’s filing. Smart tax planning begins with good financial records – be sure you have a good accounting software program that makes it easy for you to record reimbursements and revenue. You will want to keep all invoices and receipts that involve your business to make sure they line up with the data in your accounting software program.
Here are some of the most commonly overlooked deductions.
- Business Tax Credits
It’s worth investigating to see if you qualify for any business tax credits. Depending upon your business and hiring practices, you might be eligible for a work-opportunity credit if you’ve hired workers from specific sectors of the job market where unemployment rates are particularly high. Your tax professional can help you determine if your business qualifies for any business tax credits. It is worth the time it takes to check and see if you qualify.
- Home Office Deduction
Fearing an audit, some business owners are nervous about claiming a home office deduction. If your definition of a home office concurs with the IRS’ definition, you have no reason to pass on this deduction. If you maintain a room devoted exclusively to your business and nothing else and use it regularly, it is a home office. If it’s a room that doubles as a bedroom, family room or something else, the IRS will not allow the deduction. In an effort to simplify tax filing for small businesses, the IRS announced a new option in time for last year’s filings. The new rules allow small business owners to claim $5 per square foot of the home office with a maximum of $1,500 or 300 square feet. However, some business owners still prefer to stick with the old method – of itemizing and pro-rating costs like mortgage payments, utilities, etc. because the simplified option doesn’t allow them to depreciate the space used for an in-home office. Whichever option you choose, bear in mind that if the IRS audits your return, their review probably will include a visit to your home to inspect the home office set-up.
- Office supplies and furniture
Likewise, business supplies and office furniture also might be legitimate deductions. You need to have receipts for paper, ink, envelopes etc. to back up your claims. When it comes to furniture, the IRS currently allows you to either deduct the entire purchase price up to certain limits, or to depreciate the costs over a five-year period. If you go for the depreciation option, you will need to follow the IRS guidelines to figure out what you owe Uncle Sam each year. The same goes for printers, fax machines, etc. that are used for your business only.
- Health Insurance and Retirement Contributions
If you are self-employed (sole proprietor) and pay your own health insurance premiums, don’t forget to deduct 100 percent of the cost. Be aware that the amount you deduct cannot exceed your net profit, and that you won’t qualify for the deduction if you are covered by other health insurance, such as your spouse’s medical plan. Also, don’t forget that your retirement savings, including IRAs, are deductible on your personal income tax filing.
Remember your best bet always is to consult your professional tax advisor. The tax code is complicated and changes constantly. Do your part in maintaining good financial records and keeping invoices and receipts, but consult the professionals to maximize your tax breaks.