Adopt a Strategy for Reducing Your Tax Liability
What’s the best business strategy for tax planning? It’s simple. Know what you’re doing and what’s available to reduce your tax liability. What you don’t know can really hurt your business! Lack of knowledge and fear of being audited often make clients overly cautious when claiming expenses and deductions. As a result, many business owners end up paying a lot more than they should. In fact, not claiming allowable deductions can cost a business 56 percent in taxes to satisfy Uncle Sam. Why should Uncle Sam get your money when there are legitimate ways to keep more?
Tax planning is a year-round opportunity. And failing to plan means planning to overpay. Very few small business owners know the system well enough to take advantage of all the money-saving opportunities allowed in our tax code. Everybody wonders, “How far can I push the envelope?” Some go too far and push it past the edge, while others choose that cautious route and don’t put anything down. Neither strategy is good. You need to be working with a tax professional who really knows what can and can’t be done to get the most benefit for your business.
What You Need to Know
It’s all about recordkeeping and keeping track of everything. Anything you use or buy that relates to your business in some way, shape or form can (and should!) be deducted. Clients will often say, “But I don’t have a receipt for that” or “It wasn’t enough to be worth writing it down.” Trust me, everything is worth writing down! It all adds up. You’d be surprised how much all those smaller expenses add up to over the course of a year. And any expense less than 25 dollars doesn’t even require a receipt.
Do you work out of your home? While a bit complicated, there’s a formula for determining the deduction for that. And if you’re not claiming it, you should. How much do you use your car for business? Mileage, gas, wear-and-tear, and repairs can all be factored in and add up quickly to reduce your tax liability. Having lunch with a client, colleague or potential client? Deduct! Travel expenses? Need pens, paper, a new calendar, iPhone or laptop? Deduct, deduct, deduct.
Large or small, if you use it for business, count it all!
Make it Easier on Yourself
If the thought of trying to keep track of every possible deduction overwhelms you, there are strategies for that. Many business owners don’t realize there are some phenomenal apps out there to keep track of expenses. There are apps to keep track of where you’re going, who you’re meeting with, the mileage, and all expenses associated with those meetings. It can be so easy to forget to make notes or enter all that information like you should, so the apps can really help. Even if you have to invest some money in one that will do all the things you need it to do, it will really streamline your recordkeeping and make your life easier.
Also, get and use a designated credit card for all your business expenses. Put all those purchases that relate to your business in any way, shape or form on that card only. That way, you have a complete and accurate accounting of expenses and purchases at the end of the year just by going online and clicking the “print” button. It doesn’t get any easier than that.
Always remember, the IRS is there to do a job. No one from the IRS is ever going to come to you and say, “Gee, you’re a nice person. I see you should’ve taken deductions for more expenses here.” While that would be nice, that’s not their job. That’s my job.
My advice… be aggressive, but smart. And always keep tax planning at the forefront of your mind throughout the year. Don’t let what you don’t know hurt your business. In the tax game, there’s no such thing as “I paid for that out of my pocket.” Hire a professional tax planner. Then give Uncle Sam what is due, but start planning today to keep every bit you can!
John Brandvein has been in public accounting since 1958 and founded Brandvein & Co. in 1994. Not only does John have copious knowledge regarding all things accounting and taxes, he provides his clients the best possible support and stability, while being gracious and humorous in the process of delivering excellent service. You can reach John at 314.725.5514 or email him at email@example.com