There are hundreds of ways for a business owner to minimise their payment on a tax refund. Although the first two tips below may seem obvious, most business owners pay too much tax because they aren’t tracking those two items properly. As for the third tip, a business owner rarely saves money by doing their taxes. Read on to find out why.
Carry a Mileage Log
Tax professionals are always amazed at how many business owners don’t record every single business trip in a mileage log. At roughly $.50 per mile that bad habit can cost you hundreds of dollars in missed tax savings each year. And, for those who think they can just guess, failing an audit for business mileage is pretty expensive after they add interest and penalties. Purchase a printed log or a small office appointment book, and keep it in your car. Put it where you can reach it from the driver’s seat. Making the task quick and easy is the key to recording every mile driven. For regular trips, begin by developing a list of 1-2 letter codes for common errands. Record these codes in the front of your mileage log.
For example, you might use P for post office and OS for the office supply store. Next to each code record the exact mileage from your place of business to that location. Once you know it is.6 mile from work to the office supply store, you can simply write OS.6 on your log each time you follow the regular route. For one-of-a-kind business errands you’ll need to note the starting and ending mileage; enter the difference in your mileage log. At the end of each month total your miles and write that total at the bottom of the last calendar page. At tax time, add those figures together, and you’ll have the total business miles driven, and the documentation to back up your deduction.
Track Every Penny of Expense
If you don’t understand the tax code, you’re missing deductions. By the time you have your taxes prepared it’s too late to do proper accounting. And, if you’re not sure about what you can and cannot deduct in the first place, you will always pay too much tax.
Whether you use a computer accounting program or record your expenses on paper, the tracking method is the same. You have to get a receipt for every single penny spent, put those receipts in one location where you can find them at the end of the month, and sort, total and post each category monthly. Regular accounting shows the IRS that you are serious about making your business profitable, and can keep you from being categorized as a hobby industry. A hobby industry cannot take advantage of the business tax code.
Hire A Qualified Tax Accountant
There are thousands of people offering tax preparation, but you need to find someone who is qualified and will educate you about current tax law. If you’re in business for yourself, skip the national chains; many allow first-year preparers to do business returns. Most tax accountants are just as reasonably priced, and better educated on how a small business can use the tax code to increase their profit. Ask others in your profession for a recommendation.
Although remember, even the most qualified bookkeeper can do your taxe refund wrongly if you don’t provide them with the correct information. It’s your job to learn everything you can about what people in your profession are allowed to deduct and how to keep audit-proof records.