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Start Business Taxes
One of the major advantages of starting your own business is for you to understand how to reduce your taxes. Because you own a business there are many things than can be correctly categorized as a business expense and will help you LOWER your start taxes:
Home Office Space: You can write off the percentage of your home that you are using for your business, this is a LARGE IMPORTANT DEDUCTION for start business taxes, don’t forget it.
Cell Phone: Your company can pay for you and your spouse’s cell phone as a benefit and to help reduce your start business taxes.
Your Car: What ever miles you put on your car for your business can be written off and with the price of gas this is also significant. You can also lease a car for yourself as a benefit from your business.
Wireless Internet Access: If you use wireless internet in your home for your business you can expense it.
Business Meals and Entertainment: If you go to a sports event with business associates or have dinner with clients you can expense it and lower your start business taxes.
Business Trips: If you go to a conference related to your business and it happens to be a great place for a vacation you can write-off the business related part of the trip.
Computers: You can buy computers for your business and write-off the expense as long as you primarily use the new computers for your business.
Office Furniture: Your can redecorate your office and write-off all of the furniture in your office as an expense.
Software: Any software you purchase for your business can be written-off.
Accounting and Tax Services: Having your taxes done by a professional can be written-off.
Camera and Video Equipment: Any equipment that you buy for your business can be written-off.
This is a starting list for what you can consider a business expense on your taxes and if you or you spouse has regular wages and “Active” business losses can be taken against those wages and you will pay less start business taxes.
Don’t CHEAT on your taxes!
I want to be VERY clear that I’m NOT recommending manipulating your taxes or taking write-offs that are inappropriate. Everything I’m talking about is perfectly acceptable by the IRS. You have a right to write-off all of your business expenses just like any other company large or small does. But DON’T be too aggressive. Have a third party tax preparer do you taxes to make sure you are staying well within what is correct. But if you can take a business trip and add a vacation on to it and you write off the business portion of the trip that is completely acceptable behavior. If you use 20% of your house EXCLUSIVELY for your business it is well within bounds to depreciate 20% of your house on your taxes and also deduct 20% of the expenses it took to operate your house during the year: Heat, Air conditioning, Real Estate Taxes, Maintenance, etc. You can set up a Simplified Employee Pension (SEP) and put at least $30,000 a year in this pension tax deferred. Check with your stock broker or insurance advisor for exact amounts and how to set this up. It’s similar to an IRA or a 401K but there are much higher limits for what you can contribute.
How do you prepare your taxes for business?
I recommend you hire a third party to do your taxes so you only take appropriate deductions. Even if you’re audited you’ll be covered. The tax preparer will create an Income Statement for your business using all of the deductions and expenses you list for your business: your home, car, office equipment etc. If your business shows an after tax loss you get to deduct that from the income taxes you or your spouse have paid on your payroll income. This can be a SIGNIFICANT savings! If done correctly, it can lower your tax bracket and you will probably get a MUCH larger refund than you’re used to.
This tax savings may be significant enough that you can use it to help fund your business until you become profitable!
You’re not TRYING to Lose Money I also want to be clear that I’m not recommending that you intentionally LOSE money. But just because you are showing a TAX loss doesn’t mean you’re losing money. You may have made money for the year, but once all of the deductions are taken, you do show a TAX loss. For example let’s say you set up a SEP (Simplified Employee Pension) and you put $40,000 in it as part of your benefit package. That is a BUSINESS EXPENSE even though you personally get to keep the money. So between writing off the percentage of the house and your SEP you show a “Tax Loss.” Great! You’ve made money two ways with start business taxes: Through the SEP and through the tax savings from your payroll wages that you’ve saved. All of this is well within the tax laws and something you’ll definitely what to take full advantage of.
Conclusion: So as you’re planning your business try to plan ways to create cash for yourself and TAX Losses by planning when and how you spend your money and maximizing the amount you can write-off on your start business taxes.
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