8 Tax Tips for Small Businesses and Self-Employed Individuals

February 13, 2016 | By | Reply More

taxesYou get a raise every time you find a legitimate tax deduction. The IRS lists only a small number of the allowable deductions on their forms, and they are not going to tell you about a deduction you failed to take. It’s up to you. The savings can be tremendous. Here are a few:

Tax Tip #1

Your business expenses are deductible even if you paid them from your non-business bank account, personal credit card, or cash. Take a few minutes and go through all of your expenses for the year. If the expenses were for your business, deduct them. (Does not apply to corporations).
 
>> Small Business Tax Deduction Strategies That Will Save You Money (Free Download)
 

Tax Tip #2

Be careful when labeling expenses “entertainment.” Business expenses such as advertising and promotion are 100% deductible, but entertainment is only 50% deductible. Don’t call an expense “entertainment” unless it really is. IRS also requires that you “must have records to prove the business purpose (under the applicable test) and the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained.”




Tax Tip #3

Hire your kids and save a bundle in taxes,. This applies if you are running as sole proprietorship or a Limited Liability Company (LLC) taxed as a partnership and owned by mom and dad. You can pay your children under the age of 18 as much as $6,300 a year — called the Standard Deduction — write off the wages as a 100% tax deductible payroll expense, and the children owe no federal income or Social Security tax on the income earned.

Tax Tip #4

You cannot deduct charitable donations as a business deduction (unless you are a corporation). If, however, you purchase an advertisement in a charitable organization’s directory or event program, the cost of the ad is fully deductible.

Tax Tip #5

Manufacturers, and some construction, engineering, and architecture firms, software developers, and video producers, are eligible for a 9% “manufacturer’s deduction” for income earned from domestic production. This “bonus” deduction is in addition to the deductions already allowed for manufacturing expenses.

Tax Tip #6

You can go back to school, to take courses that further your education in your current business or that help you operate your business, such as bookkeeping and computer skills, and get a business tax deduction for the cost of tuition, books, fees, and even travel. IRS requires that the education maintains or improves skills in your present work; and must serve a bona fide business purpose.

Tax Tip #7

Clothing you wear to work is not usually deductible unless the clothing is a uniform or otherwise not suitable for street wear. But if you buy shirts, jackets, hats or other clothing with you business name or logo, the cost of work clothes and uniforms is fully deductible.

Tax Tip #8

In most cases, the cost of your inventory (goods for sale) cannot be written off until sold. But if you have damaged inventory, inventory that is out of date or out of fashion or otherwise unsalable, you can write off the cost of that inventory immediately.

If you have suffered a loss from a natural disaster (e.g. floods, earthquakes, accidental fires) or theft, you may be eligible for tax deductions. You can also take deduction from losses due to burglary, robbery or even blackmail as long as the event is illegal under your state’s laws. You can report your casualty and theft losses by completing Form 4684 and Form 4797.
NOTE: The tax tips are summaries of the current tax laws; read the full details before relying on the information. Please consult your accountant or tax specialist.

Recommended Books on Small Business Tax Deductions:


George Rodriguez

George Rodriguez is a writer for PowerHomeBiz.com. An entrepreneur with experience in running several businesses, he writes on various topics on entrepreneurship and small business.

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Category: Tax Management

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