For many small business owners, they are wearing many hats; owner, manager, bookkeeper, and many more. It is easy for small things to get missed, especially in the accounting and tax department. Not many enjoy the paperwork and tedious task of keeping records, but it is one of the many aspects of running a business. However, there are a few items that can save you money at tax time that are often missed.
Sweat The Small Stuff
The most common missed deductions are the small expenses throughout the year that are not tracked. You stop at the store and pick up a roll of tape or send your employee to grab a small needed item. These little purchases add up. $5 here and $15 there, pretty soon at the end of the year you have several hundred dollars of expenses that are being missed. You would not throw out a receipt for $500 for a piece of equipment but yet by missing these small expenses, you are doing exactly the same thing.
To Depreciate Or Not Depreciate
Another missed opportunity is when certain equipment is lumped in with expenses. Many equipment purchases can be listed as capital expenditures and should be listed as such. There are issues on both sides when you miss this step. Number one, you should be able to count the depreciation of the items on your tax return. Number two, by listing them as expenses, you are incorrectly categorizing them which could lead to them not being considered a current deduction at all if you are audited. Make sure you know the difference.
If you have an office at your home and do work from that office or workspace, you may be able to deduct certain costs on your taxes. Home office deductions are tricky and are very specific but it can lead to a nice deduction. The two main stipulations is that the area is used regularly and specifically for business and that it is a principal place for doing your business. You can have a storefront and still have a home office deduction if that is where you do the majority of your paperwork and other business related activities. Generally, you will be able to deduct a percentage of your home expenses such as mortgage interest, taxes and utilities based on the amount of space in your home used for business.
Contributing To The Cause
Many times a business owner will convert personal items into business items to save money and expenses, such as computers, office equipment, etc. Since they were already owned and purchased personally, they get missed as a business deduction once they are converted to business use. Do not miss out on an opportunity to gain a deduction, especially for something that you did pay for at one time or another. You can use the fair market value of the item and it is subject to depreciation rules from the time it begins being used for business.
Adding up these small, often missed, deductions can make a big difference come tax time. It may take a little extra effort on your part but it is worth the time. Don’t pay a penny more than you have to in taxes; take the money and invest it back into your business!