The successful entrepreneur or small business owner comprehends the significance of accounting for every dollar.
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By paying close attention to the intricacies of the tax code, particularly relating to income tax liability, it will pay dividends in the long run.
The one dominant method of maximizing small business income tax deductions is to become a record keeper that is highly detail-oriented. Transactions listed that are no appropriately detailed will cause some payments to be listed in a gray area…either a business transaction or a pleasure transaction.
For example, if you plan to take out important clients to a business lunch, business topics and issues must be discussed. The documentation for this meeting must be more than the simple restaurant receipt. In addition, the listed accounting entry must adequately explain the legitimate business purpose of the meeting. Here is a general overview of some areas where startups and small businesses can benefit from tax deductions.
Regarding the example above that involves business entertaining, if you are the responsible paying party for entertaining current or potential customers, you can deduct 50% of the cost, when calculating taxes.
Moreover, this should be directly related to or associated with the business, and the entertainment must take place immediately before or after a business discussion. For this reason, individuals must remember to write down details and the purpose of the event on the receipt or bill.
Another area where tax deductions should be carefully observed is auto expense. If you use your car as the company car, or the company owns the vehicle, you can deduct some of the usage costs. Even though the car used for the company is used for both business and pleasure, only the work-related usage of the car entitles the company to a tax deduction. Hence, that is why it should be a priority to keep track of how often you use the company car for business. Throughout the year, the time usage will accumulate and the total will be given at the end of the year.
Education expenses are especially popular among individuals who wish to pursue a higher level of education while working. Expense incurred on education with relevance to your current business, trade, or occupation is another expense that can definitely count towards tax deductions for a small business or startup. However, there are strict guidelines to be followed to actually get the tax deduction. One instance includes maintaining or improving skills required in your current career. Another example is an individual must be get grades above a certain point
As an entrepreneur or small business owner, travel expenses will most likely be a significant part of the total tax deductions. If you travel on business, you can deduct most of the expenses including the cost of airfare, car rentals, taxis, hotels, meals, shipping of business materials, phone calls, faxes, and tips. However, if you take your family along, the only expenses that can be deducted are yours alone.