It’s tax time for many small business owners and I wanted to post a list of tax items that every self-employed taxpayer needs to review prior to filing their taxes. Before I begin, I have to state that this post is not meant to serve as professional tax advice and that working with a professional tax preparer is still the recommended method for most people. However, it never hurts to go into a meeting with your tax preparer by being, well, prepared. Without further ado, here is the checklist:
- Make sure you put together a log for business use of mileage using your personal vehicle. If you do a lot of travel for business, this is a great opportunity to reduce your taxes. Also, keep track of your tolls when you travelled for business meetings. These can really add up if you do a lot of driving. It might be helpful to use software that keeps a record of your business mileage and tolls, such as Quicken Home and Business.
- Take a look at the getting a home office deduction by reading IRS Publication 587. There are opportunities to claim a home office deduction even if you have a satellite office, as long as you conduct most of your administrative duties at the home office location. Please read Publication 587 carefully to see what you qualify for.
- If you travel out of town for business, you may know that you can deduct 50% of the actual cost of your meals while you are out of town. However, there is a less well-known option to deduct your meals using Per Diem figures based on the city you are traveling to. Instead of having to keep receipts of all your meals, you can simply go to the GSA Per Diem Rate website and look up the rates for the city you are staying in. Once you have those figures, you can use them to calculate your total meal deduction. You still can only deduct 50% of the per diem amount. However, this may be more useful if you are not a big spender on meals. The GSA rates can be generous at times and it is possible to save a lot more in taxes and not worry about keeping records of every meal you ate if you use the Per Diem method. Tax professional Wayne Davies breaks it down very nicely in this article.
- If you use your personal cell phone, home telephone or home internet for business use on a part-time basis, you may be able to deduct a portion of your total phone. There is a lot of confusion around how exactly this can be done, so I strongly urge you to talk to a tax professional about how to go about doing this.
- Most self-employed retirement plans do not let you make contributions after the end of the tax year. However, if you have a SEP IRA as your retirement plan, you have until April 15th of this year to make a contribution to your SEP IRA for tax year 2009. This could be a great opportunity to reduce your tax liability for tax year 2009 and to add to your retirement nest egg at the same time. For more on SEP IRAs and other company retirement plans, take a look at IRS Publication 560.
Lastly, don’t forget to keep as detailed records as possible of all of your business expenses. The keys to keeping good records are:
- Use a business credit card to make purchases for your business.
- Use software such as Quicken Home and Business or Quickbooks to categorize and keep track of business expenses.
- Save as many receipts as possible. It might be worth it to use a scanner to scan in any business receipts that are not electronic to begin with. This way, you never have to worry about losing them in the future.
- Stay as paperless as possible to keep your records electronic as much as possible. This is not necessarily a tax-saving tip for this tax year, but it can really help your case for taking specific deductions if you were audited in the future. Using scanners and organizing your business expense documents properly can save you time, energy, and legal costs during an audit.
Tax time can sometimes be cause for anxiety for many small business owners. However, if you are resourceful and educate yourself on your ability to deduct the costs you incur in operating your business, you will be in excellent position to save on taxes and reduce your exposure to tax issues in the future.
- Using software like Quicken Home and Business and