Tip: Start Now for Tax Savings Later
Procrastinators rarely seize the opportunity to leverage tax breaks to the max. In order to fully benefit from the range of deductions available, small business owners must invest a little time in preparation and planning well ahead of filing deadlines.
Here are some of the deductions most frequently overlooked by business owners and entrepreneurs:
The key to maximizing travel deductions rests with keeping good daily records. Most of us know that any travel expenses involving client visits, new business meetings and trips to provide service to customers are deductible. However, it’s easy for busy entrepreneurs to forget to include parking fees, tolls, baggage handling charges and other incidentals that occur along the way.
It’s especially easy to forget these if you don’t make daily notes on money spent. A smartphone can be a big asset for logging items like this.
Using your own vehicle for work purposes allows you to deduct the cost of gas, repairs and maintenance as these expenses relate to work-related activities. Many executives opt to deduct the standard amount per mile driven as outlined by the IRS (the rate currently is 57.5 cents per mile.) Maintaining a mileage log (think smartphone program or calendar) is the smart way to record expense-related travel. Don’t forget to include runs to the post office or to suppliers.
If you maintain a home office, it can be tricky to determine what percentage of expenses involving computers and phones are deductible. For that reason, many home-based entrepreneurs prefer to use the formula that allows a home business deduction of $5 per square foot of the space that serves as a home office. The space – which, for deduction purposes, is limited to 300 square feet – has to be used exclusively for business and be your principle place of business where you meet clients/customers.
Fortunately, when it comes to items like website expenses, life gets less complicated. These expenses – which could include web design fees, hosting and domain charges, licensing fees, and software – are all deductible if they are used exclusively for your business website.
Advertising and Marketing
Most business owners realize that advertising expenses are deductible, but perhaps overlook promotional costs that might include buying space at a trade show, or paying for press releases or news alerts to be developed and disseminated.
Accurate record-keeping to support all the tax deductions you take is critical. If you know that you have not logged all expenses, or have mislaid receipts, meet with your tax professional for advice and to discuss tools that will make it easier for you to do things differently in 2015.
Mixing up your personal business records with the costs of doing business creates an accounting quagmire. In the event of an audit, the IRS wants to see separate banking and PayPal accounts, as well as credit cards used exclusively for business purposes. You will be required to prove it or lose it based on their record-keeping standards, not on a system of your own making.