You’re in business for yourself, running your own show and being your own boss. You’re also following all the regulations required of a business owner, which means paying your own business income taxes. To alleviate some of the pain, here are 10 tips intended to make your tax burden lighter.
1. Keep excellent records
The IRS expects you to keep organized records of all income and expenses. It’s up to you to save all receipts and be able to support your deductions. Invest in a good accounting system like QuickBooks, and stay on top of your bookkeeping.
2. Deduct office space
Whether you have a separate office facility or are using one room in your house, you can deduct the percentage of your home used exclusively for business purposes. This goes for utilities as well, such as your phone and Internet connections. If you have a phone line used exclusively for business, you can completely deduct those phone bills.
3. Track business expenses
Keep receipts and good records of business travel, business entertainment, and any other expenses that you can deduct, including office supplies, postage and shipping costs, dues, and subscriptions. Don’t forget computer software for your business, upgrades to your system, and any computer services required.
4. Deduct child care costs
There are allowable deductions for day care, nanny care, babysitting, and any other type of child care you need to pay for while you are working. Take the deductions allowable.
5. Set up a retirement plan
You should consider setting up a self-employed qualified retirement plan (e.g., a Simplified Employee Pension IRA), not only for tax purposes but also to save money for your retirement years. The annual limit that self-employed individuals may contribute is 18.6 percent of net profit.
6. Employ family members
You do not have to pay Social Security or Medicare taxes on an employed child (under the age of 18) of the owner.
7. Deduct business insurance
You can deduct the normal costs of insuring your business.
8. Deduct vehicle expenses
If you use your car for both business and personal use, you’ll need to separate the expenses by mileage; then you can deduct business use of the car.
9. Deduct startup costs
You can deduct some of your startup costs. See IRS Publication 535 for more information.
10. Ask for advice
Make sure your accountant is familiar with self-employment tax issues and keeps current on changes to tax laws and regulations.
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