David Sostre Top Seven Tax-Saving Tips for Small Business
There are a
number of tax-saving strategies small-business owners can use to create
business tax deductions out of what would otherwise be considered personal
expenditures. The following is a discussion of each of the major opportunities
to make your life tax-deductible as an entrepreneur:
á Your home: As a small-business owner, you may qualify to
take a home office tax deduction. In order to qualify for the deduction, the
use of your home office must be both "exclusive" and
"regular." If you qualify, you may deduct certain other expenditures,
such as depreciation and the indirect expenses of operating your home, on a
pro-rata basis. Even if you fail to qualify for the home office deduction, you
are still allowed to deduct other business expenses that you incur while
operating your business out of your home.
á Your car: If you use your car in your business, you can
deduct the costs of operating and maintaining your car. However, you can only
deduct the portion of your car that pertains to business only. This is
accomplished by pro-rating or allocating the total cost of operating and
maintaining your car between deductible business use and nondeductible personal
use. Business costs can be deducted by using either actual costs or the
standard mileage rate.
á Your equipment: You can convert personal assets into
business assets by contributing them to your business. You can do so by giving
them to your business either in exchange for a loan document or as contributed
capital. If you received a loan document, the business will repay you principal
(the market value of the assets) plus interest on a periodic (generally
monthly) payment schedule (called amortizing a loan). If you considered the
assets to be a contribution of capital, this contributed capital can be used to
substantiate your ownership position in your business.
á Your travel and entertainment: Travel expenses are expenses you incur
for your business while away from home. You are traveling away from home if
both the following conditions are met: (1) your duties require you to be away
from the general area of your "tax home" substantially longer than an
ordinary day's work and (2) you need to get sleep or rest to meet the demands
of your work while away from home. Entertainment expenses include the expenses
associated with any activity generally considered to provide entertainment,
amusement or recreation.
á Your retirement: The purpose behind having your own
personal retirement plan is to create dollars to fund your retirement. Tax law
allows you to do so in ways that are tax-advantaged. You may qualify to
participate in certain retirement plans that are available to small-business
owners, depending on certain factors, such as your business's form of
organization, other retirement plans in which you already participate, the
dollar amount of your earned income and whether you are functioning as an
employer (owner) or an employee of your business.
á Your family: As a small-business owner, you have an
opportunity to hire your spouse, children and even your parents as a way of
minimizing your family's tax burden. By shifting taxable business income to
another family member, you can move dollars from higher tax rates to lower tax
rates--creating real tax savings for you and your business.
á Your self: As a small-business owner, you are able to take
advantage of tax-free owner benefits. These benefits are paid out of pre-tax
dollars. This means that there are more of these dollars to spend, since no tax
has been paid on these dollars. This allows you and your family to enjoy
benefits that are paid by your business and that are also tax-deductible to the
business--the best of both worlds.