Starting a small business can be a great way to save money on taxes. The Internal Revenue Service (IRS) offers numerous tax deductions for business owners and entrepreneurs every year. These deductions can help reduce your income tax as well as your self-employment tax. Depending on the type of business you have, your tax rate, and your marital status, you may be eligible for the Qualifying Business Income Deduction (also known as the Section 199A deduction).
When filing your annual income tax return, the form you use will depend on how your company is organized. Generally, you must pay income taxes, including self-employment tax, by making regular payments of estimated taxes during the year. As an entrepreneur, you can take advantage of a variety of deductions to reduce your taxable income. Business owners can deduct ordinary expenses such as gas and business meals.
If you took out a loan or line of credit to keep your business going, you may be able to deduct the interest on your business loan on your tax return. If you have separate phones for business and personal use, you can usually deduct all of the lines you use for your business. It's important to keep personal and business expenses separate in order to be able to claim a business expense. If an expense cannot be demonstrated to have a true business purpose, it cannot be deducted from your taxes.
If you bought business equipment and other assets in previous years but didn't spend them in full the year you bought them, be sure to get this year's depreciation deduction for each asset. If, in the course of your business activity, you grant loans to suppliers, customers, employees, etc., you can apply for a business deduction for bad debts when these loans become uncollectible. When it comes to taxes, it pays to be organized and informed. Make sure that all of your expenses are documented and that you are aware of all of the deductions available to you. Knowing how to maximize your savings can help ensure that you are taking full advantage of all the tax benefits available to small business owners.
