Many home-based and small business owners miss out on valuable tax deductions because of lack of knowledge and organization. Here are a few tips for claiming deductions.
As the owner of a small or home-based business, it is important to take full advantage of all available tax breaks and incentives. Let’s face it, taking advantage of the tax benefits can add to a business’s bottom line profit. Money spent for purchasing business related tools, attending professional seminars and a host of other business expenses can be taken as tax deductions if they are properly documented.
Here are a few tax deduction tips for the home-based and small business owner:
- Know what is tax deductible: It is best to become familiar with the standard and not so standard tax deductions. Many business owners rely on their accountants to inform them as to whether or not an expense is tax deductible. Having a reliable accountant is great but many small and home-based business owners do not have the luxury of having their own accountant. For those who have not quite grown to the size where they can afford an accountant, it is wise to become familiar with the Small Business Expenses section of the IRS website to determine tax deductibility. Even for those business owners who do have the benefit of a good accountant, knowing beforehand what is tax deductible and what can be depreciated will help in keeping better track of expenses.
- Document, document, document: Keep track of all business receipts. It’s better to keep receipts even if there is a question as to whether or not the purchase is tax deductible. It’s always easier to throw it out if its not a tax deductible expense rather than to try to re-create it if it is.
- Get organized: Keeping the tax deductible receipts is useless if they are not organized. Develop a filing system whereby it is easy to locate each receipt at a moment’s notice. If necessary, copy and scan the receipts so that there is a duplicate copy on computer disc. Even better, when scanning the receipts make a notation as to where the original paper copy of the receipt is kept. Organizing the receipts will come in handy in the event of a tax audit.
- File an itemized tax return: This is pretty much a no-brainer. In order to receive the benefits of the business tax deduction, the government requires that the long form tax form be filed. Be aware however, itemizing deductions does increase the likelihood of a tax audit, thus making it more important to keep and organize all business-related receipts.
Tip: Keep an expense diary. An expense diary is a handy little tool. Review it at the end of each month to determine whether or not the expenses are tax deductible. Using software like Quicken or QuickBooks will help to track business tax deductions.
Having a sharp accountant is a great asset to any home or small business, but no matter how sharp the accountant, they can only work with the paperwork provided to them. It is up to the business owner to make sure the record keeping is accurate and the receipts are readily available and organized. Organized receipts can save the business money in the long run.