Tax Deductions for Small Businesses: What Can You Really Claim as a Write-off?
- Small and home-based businesses should claim all the tax write-offs they can
- What you can claim depends on whether you use it exclusively for work
- Family members can benefit from tax deductions in more than one way
- SyncLedgers’ bookkeeping service helps keep business and pleasure organized right!
Tax Write-offs Are as American as Apple Pie
Claiming tax write-offs is an important factor in the success of any business. This is especially true of small businesses, where every penny can really count. Since many small businesses are home-based, owners can sometimes be a bit hesitant to claim their full benefits out of fear of an audit. It’s understandable. Claiming tax exemption for expenses that don’t actually have to do with the business is a fast track to stiff penalties.
Odd though it may sound, however, America’s tax laws have the intention of promoting business.
“As you probably know, the tax codes in the US and in many different countries are long and complicated. The question is, why?
“The reason is that government leaders learned a long time ago that the tax codes could be used to make people and businesses do what they want by utilizing the tax code.
“In short, the many credits and breaks that are found in the tax code are there precisely because the government wants you to take advantage of them. For instance, the government wants cheap housing. Because of this, there are many tax credits for affordable housing that developers and investors can take advantage of that minimize their tax liability, put more money in their pocket, and in turn, create affordable housing. Everyone wins.
“There are many scenarios like this in the tax code that incentivize investors and entrepreneurs to do activities the government is looking for while rewarding those who take those actions with lower-or zero-tax burden.
“Because of this, limiting your tax liability actually means you’re doing what the government wants you to do through the tax code. And that is the most patriotic thing you can do.” — Robert Kiyosaki
Owning a business is one of the best ways to save money on a large number of purchases if you do it right. Don’t make the mistake of blending everything together, though.
Examples of Tax Deduction Do’s and Don’ts
If you want your family to benefit directly from your business tax write-offs, there’s a way to do it. Teach and train them and involve them in running and building the business. Never lie to the IRS. Here’s what we mean:
Arranging a Home Office
If your home is also your office, you need to have a clearly defined space that is used exclusively for work purposes. It cannot be your office by day and the kids’ playroom in the evening. Likewise, any computer that you use for work can only be for work if you want to deduct the expenses of purchasing and maintaining it.
Once those delineations are clear, though, you can write off a substantial fraction of the expenses associated with owning and maintaining your home. It’s as simple as determining the square footage of your office and dividing it by the total square footage of your home. The resulting percentage is how much of your rent or mortgage, utilities, maintenance costs, and property taxes you can deduct from your income tax bill.
Technology, Equipment, and Information
Likewise, you can write off a car or truck, but only if you drive it exclusively for work. Computers, printers, and other technology are subject to write-offs, but it’s important to note that the amount you can claim changes yearly.
Crucial to the success of your business, as well, is knowing that you can write off the costs of business-related software and subscriptions to industry websites, magazines, and other publications. The more you know!
Travel vs. Vacation
This is everyone’s favorite, so be careful. You can write off many of the costs of business-related travel. The key though is that if you want to mix business with pleasure, keep all the receipts separate. Don’t claim amusement park tickets for tax write-offs unless you want to get really familiar with an audit team. You can bring your family on business trips. If you want to write off their expenses, though, they better be working in the family business while there.
You can write off meals if you write notes on the receipts explaining that they were for a business meeting. Make sure you have emails or calendar appointments to back that claim up. This actually applies not just in the context of travel, but in daily work life, too. If you’re going to call a staff meeting, make it a working lunch, and boost morale while saving money. Win-win!
Business and Personal: Using SyncLedgers, Never the Twain Shall Meet!
SyncLedgers makes it easy to keep your business and personal accounts separate so you can claim your maximum tax write-offs. We take care of all the bookkeeping for you and coordinate directly with your CPA at tax time. All you have to do is scan your receipts and notes for us to categorize and log. It’s a great way to unburden yourself so you can focus more on growing your dream venture. Contact us today to get started!