Are you a business professional who has to gather all your miles to expense for your job? Do you actually have the time to record all the mileage you traveled with your busy schedule?
MileIQ was created in order to alleviate the problems associated with tracking business travel. 55 million U.S. workers have the ability to expense the miles they drive. Using MileIQ comes with features that make it extreme user friendly. At TaxConnections, we offer this app free of charge to all Tax Professionals.
The following is a blog presented to us by MileIQ:
You have so much going on running your business that it’s easy to not think about taxes. But, if you’re a small business owner or independent contractor, properly managing your tax deductions can lead to significant savings and more money in your pocket. This post will reiterate why tax deductions are important for small business owners and independent contractors. We’ll also point out a few deductions you can’t overlook.
Why Tax Deductions Are Important: Limiting Your Taxable Income
Put simply, the more deductions you take, the lower your taxable income will be. That means you can potentially pay less in taxes than you would and have more money to grow your business … or to spend on whatever you’d prefer.
Remember, tax fraud and tax evasion are illegal and should always be avoided. You can face stiff penalties for this, including jail time. Minimizing your tax liability by following existing rules is perfectly legal, though. Taking the deductions you’re entitled to is a great way to help your small business succeed in the long run.
5 Tax Deductions Small Business Owners Can’t Overlook
It’s easy to complain about taxes. There are definitely elements of it that are complex and burdensome for small business owners and independent contractors. With that said, there are many who argue that the tax system is geared for entrepreneurs and small business owners.
Here are some of the most interesting tax deductions that small businesses can’t afford to ignore.
Virtually every single business expense is deductible as long as it’s considered ordinary and necessary, directly related to your business and for a reasonable amount. This includes nearly everything: advertising costs, depreciation of business assets, software costs, banking fees and more.
The IRS isn’t just going to take your word for it, though. So, be sure to track your business expenses diligently and provide accurate record keeping.
Also, don’t forget you can write off all the startup costs you incurred when creating your business. There are generally considered capital expenses, so you can’t deduct them as you would normal operational business expenses.
Net Operating Loss
This can be a big one. Many businesses don’t generate a profit in its first couple years. While it’s not fun to lose money, a net operating loss can provide tax benefits. You can use this to reduce your tax liability for your past and future years.
You can find detailed instructions on how to determine the amount of your net operating loss here. You can then carry that loss back by filing an application for a refund or amend return for previous years.
Many small business owners are better served carrying that loss forward, though. Generally, a successful business may have losses in the first couple years but after gaining a strong customer base, they’re (hopefully) profitable moving forward. During those profitable years, you can use that net operating loss forward to reduce your taxable income.
Health Insurance Costs
You already know how costly health insurance can be. Thankfully, you can still deduct some of those costs for yourself, your spouse and your dependents. Remember, you can only use the self-employed health insurance deduction if your business earns a profit. If the company doesn’t earn money or has a loss, you can’t get this deduction.
You can also deduct health insurance costs as a business expense if your business pays them for employees. This doesn’t apply if you’re an employee of your business and providing yourself health insurance but there is a workaround this limitation.
If you worked for a company, that business would foot 50 percent of your Social Security and Medicare taxes. But as a self-employed small business owner, you have to pay your own Social Security and Medicare taxes—commonly known as the self-employment tax. The good news is that you can deduct 50 percent of your self-employment taxes on your annual return.
As a small business owner, you probably drive a lot. Make sure you’re getting the most out of those miles with a mileage deduction.
Every business mile is potentially worth 54 cents in terms of a deduction. You can’t deduct your commute (unless you have a qualifying home office) but just think about how quickly those business miles can add up. Every single trip to pick up supplies, visit clients, between offices or locations or drives to the bank can result in you paying less in taxes.
Just be sure you have a proper mileage log to back up your mileage claims. The last thing your small business wants is for the IRS to audit your claim, not allow your deduction and charge penalties.
Subscribe to TaxConnections Blog
Enter your email address to subscribe to this blog and receive notifications of new posts by email.