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Deducting to Zero

If you’re a small-business owner, tax season may feel daunting. The federal tax code and supporting documents are nearly 70,000 pages long, and you just want to make sure you’re saving as much money as possible. But how likely is it that you’ll do so? Over 93% of small-business owners overpaid their taxes in the past decade, according to Forbes.

“The best taxes are the ones you don’t have to pay,” writes Garrett B. Gunderson, the financial advisor who reported the statistic. Most small-business owners are unaware of the many deductibles and strategies they can use to make the most of their money this year.

Keep Every Receipt

During the year, receipts can create clutter and disorganization, which discourages most people from keeping track of them. However, you can earn plenty of deductibles by keeping each and every receipt, whether personal or business. Without spending any extra money, you can make sure the savings you’ve already earned don’t vanish.

The app 1tap receipts makes it incredibly easy. Just take photos of your receipts (even if they’re double-sided!), and it’ll automatically import the information to the app. It can sync with most bookkeeping and tax-filing software and makes your life incredibly easy during tax season.

Deduct, Deduct, Deduct

Are you aware of all your available tax deductions? All of the following are a 100% tax-deductible: salaries and benefits, telephone and internet expenses, education, depreciation, home office, interest, legal and professional feeds, moving expenses, rent expenses, business meals, business insurance, business interest and bank fees, business use of your car, and advertising and promotion. Finally, any personal expenses you can link to your business can also be deducted.

Keep in mind that there are certain conditions for accounting things like business meals. You can only deduct 50% of the cost from regular meals, while you can deduct 100% from office parties. While it may take extra time to calculate every deductible, tax software can make it easy. It’s in your best interest to take no shortcuts. All these small savings can put more money in your pocket for the upcoming quarter.

Don’t Sell Unused Property

Do you have old equipment that’s not providing ROI to the business anymore? You should weigh your options. Donating it, so long as you’ve owned it for over a year, is fully deductible. Selling it would make it a capital loss, which is not deductible. Find your property classification under Section 1231 of the federal tax code to help you determine the largest savings option.

Deduct Startup Costs

As long as you created your business, any expenses tied to starting your company can be deducted up to $5,000 along with up to $5,000 in organizational costs — but only if your total startup costs are $50,000 or less. Tax software or an expert can easily help you file for typical costs associated with setting up a business.

Spend Money to Save Money

Within the right profit margin, spending money on your business can reduce your taxes to zero. It’s not news to most entrepreneurs, but the more you spend on the business, the more tax deductions you earn. Don’t spend $10 to save $3, but don’t be too stringent on savings; keep in mind that buying new equipment, hiring new employees, creating an advertising campaign, and more can lead to cheaper taxes.

Track Carryover Tax Deductions

Don’t forget to keep tabs on past capital losses, net operating losses, home office deductions, or large charitable donations. If these deductions aren’t fully used in one year, they can carry over and apply to the next.

Remember the Tax Cuts and Jobs Act of 2018

While this act did cut out deductibles available in previous years, such as travel expenses, you can still benefit from the change in many ways. If you file as a pass-through entity for your business, you may already be aware that your standard deduction has been doubled. This can even mitigate the benefit of keeping track of your receipts if your spending was modest in the past year. However, this is only if your business taxes are filed individually. Be sure to double-check the recent changes before filing to make the most of your deductions.

Without spending any extra money, you can track all your deductibles and tie any personal income or home office expenses to your business to save as a small-business owner. If you do spend extra money — with tactful awareness of the profit margin — you can still make your tax season easier and less stressful.