Owning a business often allows you to move what would otherwise be personal expenses into the business category. But many under use the deductions available to them.
The most common one is the home office deduction. This is actually well known but many hesitate to use this because of unnecessary fear of increased audit likelihood. However, this deduction is completely legitimate for most businesses that work out of the home. If you have good records and a legitimate claim, there is no reason not to claim it. If you are unsure, talk to your tax preparer.
Health care premiums These are deductible if you itemize but medical expenses are subject to the 10% threshold. Only those medical expenses that exceed 10% of your adjusted gross income are deductible. Also, many people don’t itemize in which case they are usually unable to claim any deductions for health care premiums or other medical expenses.
But if you are self-employed, these premiums are fully deductible on the front of your tax return. Even if you are incorporated or in a partnership, there are ways to deduct premiums and other medical expenses from your business income.
Pay your parents/pay your children If you have a valid business need for labor that is well documented, you can deduct wages or other payments to your family members. With a bit of recordkeeping, the allowance you pay your kids can be converted into a deductible wage. Or, here is a great example of payments to a parent. We had a client that wanted to help his Mom out but she didn’t want ‘charity’. He put her on the payroll where she performed light duties, one of which was baking cookies for weekly meetings.
Education If you are taking courses that maintain or improves a skill required in your business, it is probably deductible. This could include tuition, course fees, lab fees, webinars, certifications, and travel between your business and class location. Education credits may also be available and if so, you need to determine which is more advantageous. Don’t forget journals, subscriptions or other materials that help you improve your business or improve your skills.
Past missed depreciation We see this most often in home child care businesses, but it could apply to many others. Business owners often don’t take all the depreciation expenses they are entitled to. We recently helped one day care business owner recoup unclaimed depreciation for the prior 3 years for which they received an extra $800 in refunds.
Loss carryovers Many businesses just starting out operate at a loss and may end up with losses that can’t be used in that particular year. But, many of these losses can be carried over to future years where there benefit is fully used. Be aware of these and make sure they don’t get lost from one year to the next.
SAVE ON TAX PREP Don’t forget that savings can also come from where you have your taxes done. AFS tax services are typically priced at about 60% or less of that charged by the national chains and even less when compared to CPA’s and other accounting firms.
AFS – use the best for less