Being a business owner can be overwhelming. Believe me, I hear you!
We have so much on our plates that many accounting and, more specifically, tax deduction opportunities can fall by the wayside.
So let's start from the beginning.
What exactly is a tax deduction?
The amount of taxes you pay is directly impacted by tax deductions or write-offs. Your reported deductions are deducted from your gross income when you file your taxes. Your taxable gains are what are left over and are what get taxed.
It's simple; you'll pay less tax the more you have in tax deductions. Because of this, write-offs are crucial for small business owners.
Here is the thing: these deduction opportunities, which may be daunting and insignificant, can significantly lower our taxes during tax season.
For business deductions, the IRS's general rule is that the expenses must be ordinary and necessary. (I know, that’s very broad!)
"Ordinarily" means that similar companies also write off those costs.
When an expense is necessary, it signifies that it will benefit your firm.
Below is a list of common business deductions:
How do I track the tax deductions?
Keep in mind that it is your responsibility to have an accounting system in place for your business. This system needs to clearly reflect both your income and expenses.
While you can get started with a monthly spreadsheet in Excel or Google Sheets, there will come a point in your entrepreneurial journey where the quantity or complexity of the accounting will call for something a bit more sophisticated.
Documentation to keep to support the tax deductions
When it comes to your business deductions, the IRS makes it your responsibility to track and keep the necessary documentation to support that expense. You are required to keep your records until the statue of limitations of 3 years runs out.
This means, you should keep the following records related to expenses:
Canceled checks or other documents that identifies the payee, amount, and proof of payment/ETF
Cash register tapes
Credit card receipts and statements
Petty cash slips for small cash payments
Saving your data electronically on your smartphone, computer, or in the cloud is a fantastic choice if you want to make sure that you have the documentation you require. Paper documents should be scanned or taken in high-quality pictures. Regularly update and verify the accuracy of your records. You can ensure that you claim all of the tax deductions to which you are entitled by taking the necessary precautions to secure your records, and you can also ensure that you will have the data necessary to support your claims in the event that the IRS launches an investigation into your tax filings.
Make sure you get the most money back that you can by running down your expenses with licensed Certified Public Accountant. At Athena CPAs, we specialize in small to mid-sized businesses, so they know all the tricks to help you maximize your deductions. Get started today with a free one-on-one consultation with a certified tax professional, or sign up for our free newsletter using the form below.
ATHENA is looking forward to being your strategic wealth partner for you, your company, and your future. Let’s build wealth the right way!