Small business owners often overpay on taxes by missing out on eligible tax deductions. Maximizing tax deductions such as home office expenses, vehicle costs, and business meals is crucial for reducing tax liability. Understanding what qualifies—like a portion of home expenses for a home office or business miles driven—can significantly lower your taxable income. For instance, using the home office deduction, a small business owner could deduct a percentage of home-related costs proportionate to the space used for business purposes. Additionally, strategic hiring, like employing your children, can shift income to a lower tax bracket, leveraging more savings. Consulting with a tax professional can ensure you utilize these tax deductions fully and remain compliant with tax laws.
As we navigated through the latest tax season, we identified several opportunities to save our clients money.
Leverage Tax Deductions
Numerous tax deductions are available for small business owners, such as home office expenses, business mileage, and office supplies. These deductions can significantly reduce your taxable income.
Maximize Retirement Plans
Consider contributing to retirement plans like SEP IRAs or Solo 401(k)s. For high-income earners, a defined benefits plan is an excellent option. These plans not only secure your future but also reduce your taxable income.
Utilize Depreciation
Don’t overlook tax deductions for depreciation on assets like equipment and property. These deductions can lower your tax liability and enhance your business’s financial health.
Qualified Business Income Deduction (QBI)
If you qualify, the QBI deduction allows for a 20% deduction of your business income, offering substantial tax relief.
Deduct Professional Services
Fees paid for legal, accounting, and professional advice related to your business are deductible. Make sure to keep track of these expenses throughout the year.
Optimize Mixed-Use Expenses
If you are self-employed, the tax code allows you to take deductions for expenses you were going to spend money on anyway. Your house, car, cell phone, meals, and even vacations can be deducted as business expenses if you have the proper documentation and controls.
These are just a few ways to ensure you’re maximizing your tax return. For more personalized tax advice, don’t hesitate to reach out to a tax professional.
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