How Do I Get A Tax Code After Being Self-Employed 3 Ways That a Business Owner Can Minimize Their Taxes

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3 Ways That a Business Owner Can Minimize Their Taxes

There are hundreds of ways for a small business owner to reduce their tax bill. Although the first two tips below may seem obvious, most small business owners pay too much in taxes because they don’t track these two things properly. As for the third tip, a small business owner rarely saves money by doing their own taxes. Read on to find out why.

Tip #1 – Carry a Mileage Log

Tax professionals are often amazed at how many business owners don’t record every single business trip in a mileage log. At roughly $.50 per mile that bad habit can cost you hundreds of dollars in missed tax savings every year. And, for those who think they can only guess, failing an audit for business mileage is quite expensive after they add interest and penalties.

Buy a printed log or a small office appointment book, and keep it in your car. Place it where you can reach it from the driver’s seat. Making the task quick and easy is the key to recording every mile driven. For regular trips, start by making a list of 1-2 letter codes for common tasks. Record these codes at the front of your mileage log.

For example, you might use P for post office and OS for office supply store. Next to each code record the exact mileage from your place of business to that location. If you know it’s.6 miles from work to the office supply store, you can write OS.6 in your log every time you follow the regular route.

For one-of-a-kind business transactions you must note the start and end mileage; enter the difference in your mileage log. At the end of each month total your miles and write that total at the bottom of the last page of the calendar. At tax time, add the numbers and you’ll get the total business miles, and the documentation to back up your deduction.

Tip #2 – Track Every Penny of Expense

If you don’t understand the tax code you are missing deductions. By the time you prepare your taxes it is too late to do proper accounting. And, if you’re not sure what you can and can’t deduct up front, you’ll often end up paying too much tax.

Whether you use a computer accounting program or record your expenses on paper, the tracking method is the same. You should get a receipt for every penny spent, keep the receipts in a location where you can find them at the end of the month, and sort, total and post each category each month. . Regular accounting shows the IRS that you are serious about making your business profitable, and prevents you from being categorized as a hobbyist. The entertainment industry cannot take advantage of the business tax code.

Tip # 3 – Hire a Qualified Tax Accountant

There are thousands of people who offer tax preparation, but you need to find someone who is qualified and will teach you about current tax law. If you’re in business for yourself, skip the national chains; many allow first year preparers to make business returns. Most tax accountants are equally reasonably priced, and more educated on how a small business can use the tax code to increase their profits. Ask others in your profession for a recommendation.

But remember, even the most qualified accountant can do your taxes wrong if you don’t give them the right information. It’s your job to learn everything you can about what people in your profession are allowed to deduct and how to keep audit records.

If you go three for three, chart every mile you drive, track every penny spent, and work with a qualified tax accountant, you’ll pay less in taxes. And paying less tax always increases the bottom line.

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