Filing your taxes is one of the least exciting parts of owning your own business. However, your small business taxes can be extremely painful without proactive tax planning. Here are some tax deductions that could help you keep more of your hard-earned money.
1. Small Business Pension Plan Contributions
Retirement plan contributions are one of my favorite tax planning tools for business owners. Why might you ask? Because you can often make most or all of the contributions after the end of the tax year. If you receive a surprisingly high tax bill from your accountant, you may be able to supplement your small business retirement plan to gain valuable tax deductions and reduce your total taxes owed for the previous year.
As a business owner, you have more options to be proactive when it comes to retirement planning and tax planning. Depending on your taxable income and the type of retirement plan you have in place, you could significantly reduce your current tax liability each year. Some of the most common retirement plans for small business owners are the SEP-IRA, Solo 401(k) planand Cash Balance Pension Plans.
There are rules about how much you can contribute to each plan. The amount will depend in part on your age, income and business structure. To give you an overview, I am currently helping a business owner client protect nearly $600,000 in income for the 2021 tax year and, at the same time, improve the client’s future financial security in retirement. .
2. Health insurance premiums
You may have noticed that health insurance is expensive. If you are self-employed, you may be able to deduct the money you spend on health insurance premiums for yourself, your spouse, and even your dependents. Don’t miss this valuable deduction.
3. Market your business
Business owners can get tax deductions for the money they spend, making people aware of their business. This can take the form of networking, search engine optimization (SEO), your website, conferences, or even traditional marketing and advertising.
4. Business-related insurance premiums
Most businesses need some form of insurance, and some may need more than one type. These may include errors and omissions (E&O), malpractice insurance, liability insurance, and workers’ compensation insurance. These are in addition to insurance to protect your business premises and property. These insurance premiums are deducted separately from your health insurance premiums.
5. Legal and Professional Services
You cannot be an expert in everything. Even if you could, who has time to do it all? If you delegate responsibilities, take advantage of tax deductions for your legal and professional services.
Do you pay for accounting? Tax preparation? Business consultant? Lawyer? HR staff? Business financial planning? All of these time-saving services can add up. Fortunately, the net cost can be slightly lower when your accountant can deduct these expenses from your business income.
6. Home office deductions
To claim the home office deduction, part of your home must be used “exclusively and regularly for your trade or business” and that part of your home must be your principal place of business; a place where you meet or deal with patients, clients or customers in the normal course of your trade or business; or a separate structure used in connection with your trade or business.
This deduction can be valuable, but be sure to keep records of expenses and the part of your home you use exclusively for business purposes.
7. Car expenses related to your business
If you use your vehicle exclusively for business purposes, you can deduct the cost of using that car or truck. It can be any combination of car lease payments, interest on your car loan, gas, parking, maintenance, and even repairs (in some cases).
For those who share the use of the vehicle between staff and the business, you can deduct only the portion attributable to the business. If so, you will want to keep records to substantiate the amount of commercial use. This could include a mileage log showing when you use the automobile for work.
8. Office supplies for your business
It may seem obvious, but a lot of people miss this area. When you order paper or ink cartridges from Staples or Office Depot, you pretty much know you’re buying office supplies. When you walk into a target
9. Licenses and taxes for your business
They’re probably tax deductible if you have to pay taxes or license fees to run your business. This can even include property taxes or property taxes you pay on business real estate. It may also include professional license fees.
10. Your mobile phone
Many successful businesses require the use of a cell phone. Whereas nowadays, a mobile phone is necessary for most of us. For many business owners, it can also be a tax-deductible expense. When I started as a financial planner (many years ago), the rule of thumb was to deduct the business portion of your cell phone use; However, today it is common for the self-employed to deduct most or all of their cell phone bills.
11. Self-Employment Tax.
You are probably aware of the payroll taxes deducted from your paycheck for Social Security and Medicare each year. Together, these payroll taxes are called FICA (Federal Insurance Contributions Act). You may not be so clear that there is an additional tax on self-employment income called SECA (Self-Employment Contributions Act).
When you are an employee, your employer will pay the SECA share of social charges. When you own your own business, you have to pay both sides of payroll taxes; super fun, right? The only good news here is that you get tax relief for the part that an employer would typically pay. Not as great as not having to pay for it, but better than nothing.
I know tracking tax deductions isn’t very exciting for most people. But think how much less you would have to work if you could significantly reduce your taxes due each year? To get the maximum tax deduction for paying minimum taxes, you need to proactively track all of your tax-deductible business expenses. Tax planning and your tax planning expert are your friends.