How Small Businesses Can Destress Tax Planning and Reporting
Our 7-Point Guide Will Save You Time, Money (and Headaches)
We invite you to follow our tips for how small business owners and entrepreneurs can de-stress the burden of tax reporting and have more time to run their business.
Tip #1: Understand what’s deductible and not as a business expense.
The things you spend money on to run your business day-to-day, such as office supplies, postage, printing, stationery and business cards, business publications, software, computers and other technology, ongoing education, auto expenses (for business-related travel), etc. are considered “ordinary” and “necessary” expenses and as such are tax deductible. Also considered deductible expenses are the fees of attorneys, accountants, marketing agencies, graphic designers, website programmers, and other outside support. For a full listing, check with your financial advisor or accountant.
Tip #2: Keep track of business expenses on a regular (weekly) basis.
It’s easy to be so busy with work that you forget to log all of your business expenses. However, don’t make the mistake of thinking you’ll remember them at the end of the quarter. If you do nothing more than stash receipts in a designated drawer or binder with each purchase made, or organize them at the end of each week, you will be far more able to take full and accurate advantage of all deductions you have coming. Remember, every deduction saves you money.
Tip #3: Be aware of limitations regarding certain tax deductions.
Think twice before you host a pricey dinner for a roomful of prospects, or buy expensive gifts for clients. Yes, these expenses are tax deductible but not at 100%. Business entertainment is only 50% deductible, and business gifts are limited to $25/per person per year. You’ll also want to look at the various methods for taking automobile expense deductions and determine which is best for you.
WATCH-OUT: Money you spend to open your business –– any expenses incurred before your first sale –– are considered “start-up” costs and are subject to specific tax deduction laws. Before spending money, thinking these costs are fully tax deductible, discuss them with your financial advisor or accountant.
Tip #4: Understand from a tax perspective what it means to be a small business owner.
As a small business owner, you are both the employee and the employer. That means you pay federal, state and city tax as well as social security and Medicare from “both sides of the desk”, so to speak. This is why it’s so critical that you take all measures allowed to reduce your tax burden. Also essential is that you take all deductions permitted for your type of business structure –– limited liability corporation, S-Corporation, partnership, etc.
Tip #5: Set up a retirement plan and make regular contributions.
Here again, as your own boss you are responsible for your own retirement plan. Talk to your financial advisor and/or accountant to set up a 401K plan. Ask what your total contribution limit is per year at your age and do your best to maximize your contributions, remembering that you won’t be taxed on retirement plan savings until you withdraw those monies.
Tip #6: See if you qualify for a home office deduction.
While it’s fine to run your small business from home and to take the home office deduction, the square footage allowable for this tax deduction must be used strictly for business purposes. Also, in most cases you are not allowed to deduct both a home office space and another office space elsewhere –– it’s typically one or the other.
Tip #7: Plan ahead for your tax liability.
Small business owners can be caught off guard especially in the early years and not have adequate monies set aside for taxes due. It’s time well spent to ask the help of an expert in planning for your tax liability to avoid bad surprises when the tax bill arrives.
Starting your own business can be a lifelong dream. It also can be demanding in ways you never imagined. At Lenox, we help guide entrepreneurs and small business owners through the many steps of business ownership. We help align your business and career planning with your personal financial planning, helping you attain what matters most to you and your family. It’s one more way we help you FUND A LIFE YOU LOVE™.
If you’re ready to discuss financial, career and life planning that will allow you to Fund a Life You Love®, we’d love to tell you more. Let’s talk. It’s your tomorrow. Call us for a complimentary 1-hour review. Call 513.618.7080 or visit www.lenoxwealth.com to Fund a Life You Love.
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