As a home-based business owner, you are always careful about preparing and filing your tax return on time. And when the time comes to pay your due to the IRS, you realize that you may have to postpone the family trip you had planned. Yes, taxes are a burden for every individual or business, but it is possible that you are paying more than you should for your home-based business.
How is that so? The numbers don’t lie. No, they don’t, but have you really included all the deductions you are legally entitled to? For those of you who are just starting out as a business owner, a deduction is an amount of money you paid in relation to your business and which you have the legal right to subtract from your taxable revenue.
Today we will share with you some of the most valuable taxation tips from tax specialists and accountants, which will help you reduce the amount you have to pay after filing your tax return. Let’s get started!
1. Deduct Your Health Insurance Costs
New tax regulations make it possible for home-based business owners to deduct the expenses for their, and their family’s, health insurances. However, there are a few rules which restrict this deduction:
⦁ If you run your home-based business as a secondary occupation to a full time job where your employer pays for your health insurance, you cannot deduct it on your home business tax return;
⦁ If your spouse is employed and their employer subsidizes their health insurance, you also disqualify from this deduction.
2. Retirement Plan
Even though you are running your business on a bootstrap budget, find some extra financial resources to invest into a tax deferred retirement plan. It is a good idea for the golden age when you want to relax and enjoy the benefits of hard work and it is also going to help you right now, in the present, by adding some deductions to your tax return.
3. Deduct Travel Expenses
Home-based business owners do not spend all their time at home. Some of them will attend business conferences, or perform business-related tasks out in the city or even in a different city. For any of these business-related travels, you are entitled to deduct 100% of your travel and accommodation expenses and 50% of your meals.
4. Deduct Expenses for Taking Clients out to Lunch
Discussing business over lunch at a restaurant is one of those age-old marketing strategies which still work and will continue to work for a long time. It is a sign of consideration and respect and it will certainly win you the client’s favor. What’s more, you can deduct 50% of the restaurant bill.
However, due to widespread abuse of this type of deduction, the IRS pays very close attention to deductions on lunch with clients. In order to defend and justify your deduction, keep a journal where you write down every such lunch, the name of the customer and link it to the business you managed to conclude (i.e. invoice of the client’s purchase from your home business).
5. Car Expenses
If you use your personal car for business purposes, such as going out to meet with clients or purchasing supplies for your home-based business, you are entitled to a standard mileage deduction, including parking fees and highway tolls. Again, just like in the case of meals with clients, you will have to prove that these travels were related to your daily business operations.
It is important to know what to deduct, but also what not to deduct. Although you may feel tempted to deduct a family trip or dinner with friends, don’t. If the IRS challenges your deduction and you cannot prove, with documents, that it is a legitimate business deduction, you will have to pay back taxes and penalties.