Keep More of Your Small Business Earnings

If you are a US-based technology independent contractor or own a small business, it may frustrate you to hear about corporations paying little or no taxes. They have money to hire lawyers and teams of accountants to take advantage to tax loopholes not available to the “little guy.” Dismiss that kind of thinking, because there are many tax deductions that you can take to reduce your tax bill. Lowering your tax bill is like giving yourself a raise. Many of us gather up our records and W-2’s right before the tax filing date and try to make the process as painless as possible. To really take advantage of the maximum deductions, you really need to start preparing now, for next year’s filings. A few simple record-keeping habits, tips and tricks, could save you thousands of dollars per year. Here are a few.

Small Business

The Mileage Notebook

For many Americans, the expenses associated with cars are second only to housing-related expenses.  To figure the total cost of driving a vehicle, you have to consider car insurance, maintenance and repairs, as well as gasoline.  The 2016 standard mileage deductions for a car, pickup or panel van are 54 cents/mile for business, 19 cents/mile for medical or moving, and 14 cents per mile driven in service to a charity.  It may seem like insignificant numbers of pennies, but it can add up very quickly. The key to being able to take advantage of these deductions is “proof” that you drove those miles.  That proof is still just your word, but if you are audited, you have to show a mileage log. The most simple way to keep track is to keep a pen and a notebook in your vehicle’s glove box. Write down the odometer readings at the beginning and end of each trip. Subtract the first number from the second to get the number of miles driven. Note the purpose of the trip, such as “Business: Meeting with customer John Smith.”  If you have company cars, require your employees to follow this procedure every time they use the company cars.  At the end of the year, these logs can be quickly tallied up, to save you hundreds of dollars or more.

Save Every Receipt

If you have a high volume business, you may have actual accounting programs in use already, that keep track of expenses, materials, employee costs, etc.  Everything that you spend that contributes to your income is generally deductible and should be recorded. An easy way to do this is to simply to have a receipt box. If you go to the store and buy office supplies, put a mark next to the items that are business related, put a note on the back, if necessary, and then just put it in the box and forget it until tax time. Another reason to do this is that you can deduct state sales taxes from your federal taxes, which can add up to hundreds or thousands of dollars per year of deductions. If you keep track of expenses with another method, such as categorizing your purchases in an accounting program, you will still need these receipts for any audit.

Take Advantage of Rewards Programs

Over the course of your normal buying of deductible items, such as clothing, make use of sales and reward programs. For example, JC Penney has a reward point program that can get you cash back or free merchandise.  You can get deductions for the clothing and save money with rewards, to put even more money back in your pocket. A dollar saved is a dollar earned.

Consider using a qualified tax accountant

Fees that you pay an accountant are themselves tax deductible.  The tax code is long and complicated and changes every year. A qualified tax accountant should find you deductions that you did not know you could qualify for, which should completely offset their fee. For example, if you paid an accountant $500 and he increased your tax refund by $1500, you just made $1000.

There is a saying, “Mind your pennies and your dollars will take care of themselves.”  Take the time to keep good records all through the year and even small deductions can add up to significant tax savings.  Make it a daily habit and you won’t even notice the time it takes. However, you will notice that nice big refund check next spring.