How to Make Small Business Tax Deductions
Speak with a bookkeeper or certified public accountant (CPA) to develop a way to keep track of business expenses., Study the current year's possible tax deductions., Ensure you keep a tax diary on computer software or a journal., Keep receipts of...
Step-by-Step Guide
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Step 1: Speak with a bookkeeper or certified public accountant (CPA) to develop a way to keep track of business expenses.
These will be your main source of business tax deductions.
You should have receipts, a journal and a plan to deliver these materials to a CPA or a date to collect the data and do taxes yourself.
A consultation by your tax preparer or a contracted CPA should include some advice about what business expenses will count as deductions.
They should be able to help you tailor your system to your type of business. -
Step 2: Study the current year's possible tax deductions.
Tax law is changeable and every year, governments bring in new deductions and remove old ones.
Websites, such as SBA.gov (Small Business Administration) and IRS.gov list tax expenses.
Check back on these web pages at the end of the year for an update.
Occasionally, laws are passed during the year that change and add to tax deductions. , Most people have moved from handwritten tax diaries to automated software programs that help track income, expenses and do payroll.
Examples include Quicken and PeachTree.
Keeping a regular tax diary and all your receipts in an organized manner is liable to save you money in taxes or preparation in the long-run.
If a CPA has to make all the calculations by hand from your receipts, they are going to charge a large hourly rate to do so.
If a receipt gets lost and you have no other records, you are bound to miss out on valuable tax deductions. , As you add to your tax journal with your receipts and invoices, keep a miscellaneous folder of tax expenses.
When you check back at the tax deduction updates at the end of the year, you may find that the laws have changed and you can expense something new. , Although the government does not collect your receipts, you can be audited for up to 5 years afterward.
People who deduct personal expenses, or expenses that have no documentation, can be fined heavily in the years to follow. , Look at IRS Form 3800 to find applicable tax credits for your business.
You must choose whether you want to take something as a tax credit or a tax deduction, and in many cases the tax credits can be more generous than the tax deductions, because they may be calculated based on your business size rather than your income.
For example, the US Congress passed the HIRE Act, which made it more advantageous for a small business to receive a tax credit for employee health insurance premiums, than to deduct those expenses, in most situations. -
Step 3: Ensure you keep a tax diary on computer software or a journal.
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Step 4: Keep receipts of anything that could be considered a "reasonable" business expense.
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Step 5: Do not deduct anything that you do not have a receipt or bank statement of
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Step 6: to show as proof.
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Step 7: Take tax credits as well as tax deductions.
Detailed Guide
These will be your main source of business tax deductions.
You should have receipts, a journal and a plan to deliver these materials to a CPA or a date to collect the data and do taxes yourself.
A consultation by your tax preparer or a contracted CPA should include some advice about what business expenses will count as deductions.
They should be able to help you tailor your system to your type of business.
Tax law is changeable and every year, governments bring in new deductions and remove old ones.
Websites, such as SBA.gov (Small Business Administration) and IRS.gov list tax expenses.
Check back on these web pages at the end of the year for an update.
Occasionally, laws are passed during the year that change and add to tax deductions. , Most people have moved from handwritten tax diaries to automated software programs that help track income, expenses and do payroll.
Examples include Quicken and PeachTree.
Keeping a regular tax diary and all your receipts in an organized manner is liable to save you money in taxes or preparation in the long-run.
If a CPA has to make all the calculations by hand from your receipts, they are going to charge a large hourly rate to do so.
If a receipt gets lost and you have no other records, you are bound to miss out on valuable tax deductions. , As you add to your tax journal with your receipts and invoices, keep a miscellaneous folder of tax expenses.
When you check back at the tax deduction updates at the end of the year, you may find that the laws have changed and you can expense something new. , Although the government does not collect your receipts, you can be audited for up to 5 years afterward.
People who deduct personal expenses, or expenses that have no documentation, can be fined heavily in the years to follow. , Look at IRS Form 3800 to find applicable tax credits for your business.
You must choose whether you want to take something as a tax credit or a tax deduction, and in many cases the tax credits can be more generous than the tax deductions, because they may be calculated based on your business size rather than your income.
For example, the US Congress passed the HIRE Act, which made it more advantageous for a small business to receive a tax credit for employee health insurance premiums, than to deduct those expenses, in most situations.
About the Author
Mary Hart
Professional writer focused on creating easy-to-follow organization tutorials.
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