Taxes are the one expense that universally every business has
to worry about. Many business owners don't pay enough attention
to taxes. Your taxes can amount to as much as a third of all your
income. It makes sense to learn as much as you can about how
to mitigate and reduce your taxes.
Here are some of the most important things you need to know
about how to lower your tax bill, while still keeping on Uncle Sam's
==> Document, Document, Document
The secret to success with taxes is to document everything.
Document where all your income came from. Document all your
expenses. Document who you ate dinner with and what you talked
Receipts can be stored physically or digitally. There are a lot of
different scanning and record keeping services online today that
make it easy to keep accurate records.
==> Cash Method versus Accrued Method
Decide whether to use the cash method or the accrued method
for tracking your expenses. Talk to your accountant to see which
makes the most sense for your company.
With the cash method, you count your profits and losses the
moment cash is made or lost. With accrued, you count it when
the cashflow is added to the books, rather than when the cash hits
the bank. So if you make a sale today but don't get paid for 60 days,
that money is still accrued today.
This has a huge impact on your taxes. For example, with the cash
method, if you had a big profit this year you could pay up front for all
your advertising for the next six months and actually "lose money"
for the year even though you were profitable.
==> You Get about $5,000 Free Each Year
Know that every year you get about $5,000 of tax free income.
The exact number changes from year to year.
==> Deducting Your Home Office
If you have a home office, that office can be deducted. In order for
this to count, you must have an area of your home that's used
exclusively for business.
Figure out what percentage of your home's square footage is taken
up by your home office. You can deduct that percentage of your rent
as a business expense.
Depreciation is a tax credit for "things breaking down" or getting less
valuable over time. All office equipment, including computers and
printers and chairs, has depreciation deductions.
If you own your home, you can even get a depreciation deduction
for your home office space.
==> Turbo Tax versus Accountants
Should you file your own taxes or should you hire an accountant?
If your taxes are relatively simple and you've filed your taxes with an
accountant for the last few years, using TurboTax is perfectly okay.
On the other hand, if it's your first time filing taxes as a home based
business, going with a real accountant can help make the process a
lot smoother. They'll be able to answer any questions you have and
help you identify ways to save money.
Taxes are a complex thing. Fortunately, you really only need to figure
it out once. Once you know how it works, you'll be able to track all your
expenses and deductions in a fairly intuitive manner.