When you run a small business, saving money on your tax return sometimes comes down to little more than keeping good records. Unfortunately that means tracking all those little expenses, because they can add up throughout the year. The question is, are you capturing all those small expenses? If not, here are some tips on how to ensure you’re not leaving money on the table.
Frequently Forgotten Expenses
It’s staggering how much goes into running a small business, and how quickly things can become tangled between business and personal accounts – especially for sole proprietors. Think about it. You’re doing your grocery shopping and remember you need a new desk calendar, so you toss one in your cart. Or you’re Christmas shopping on Amazon and see a good deal on printer ink, so you stock up. Or maybe you’re meeting a potential client for breakfast and while you remembered to deduct your meal, you forgot about the mileage to get there.
These types of common, but small, expenses can quickly add up to a major tax deduction. The trick is remembering to deduct them. Some of the most common (and often overlooked) business expenses include:
- PayPal and other payment processing fees. If you get paid via PayPal, then you know they charge around 3% of each transaction for the service. These fees quickly add up so make sure you’re keeping track and adding them to your tax return as “bank fees.”
- Dues and subscriptions. Do you belong to paid forums or membership sites related to your business? These charges are deductible as well.
- Small Office supplies. This includes the stuff like paper, pencils, staples, etc. It’s not uncommon to forget that you bought these things or to purchase them during a trip where you’re also buying personal items.
- Domain names and hosting. Your Hostgator bill, GoDaddy purchases, etc.
- Advertising. Whether you do pay-per-click via Google or Facebook, buy mailing lists, or pay for ad placement on other websites, it’s all deductible.
- Commissions. Do you have sales staff? Deduct those payments!
- Business Mileage. Remember that trip to get the office supplies above? You did deduct the mileage right? Is tracking your miles too hard? Consider getting an app for your phone like Tap2Track Mileage which uses GPS to do all the calculating.
- Depreciation. Most of the time your accountant will do this without any input from you. But if you use equipment or a vehicle in your business, you should check that deprecation is being calculated and included on your return.
Keeping Good Records
So once you know what expenses to track, the key to getting the biggest tax deductions lies in keeping good records. For most small businesses, the simplest solution is to use a software program set up specifically for this purpose, such as Quickbooks or Peachtree. However, if you’re not that disciplined then make sure you charge your business expenses only to your business credit or bank card. That way, they are at least in one place. And if you’re not that disciplined? Heck, just throw all the receipts in a box and give them to your accountant at the end of the year.
No matter what solution you choose, though, make sure you consistently record your expenses. The last thing you want to do is scramble at the end of the year to find receipts and enter data. That would be a nightmare. Instead, set aside time each week (or more often, if necessary) to update your books. If you find it overwhelming and you tend to put it off, consider hiring someone to maintain your accounts for you. Remember – what you pay him or her is deductible as well!
Finding all those overlooked expenses can mean the difference between a huge tax bill and one that is more manageable. While the things listed here will get you started, it’s a good idea to also speak with a tax professional. Make sure he or she fully understands the nature of your business, so he or she can ask the right questions and make appropriate recommendations for your business write-offs.
- Top Tax Write-offs for the Self-Employed (turbotax.intuit.com)
- Small Business Tax Write-Offs: Rules & Regulations (staples.com)