Eight Tax-Saving Tips for Small Businesses

Article written by EricBank

If you are a sole proprietor, a small partnership, LLC or S corporation, or run a small business from your home, it's especially important to take advantage of all the tax deductions and benefits due you, since small businesses usually have limited financial resources. We've assembled eight tax-saving tips that will help reduce your tax bill and keep more money working inside the business.

·         Keep Excellent Records -- Every time you lose a receipt or transaction record for a deductible expense, you are throwing money away. It usually a matter of having good bookkeeping habits and using either a qualified tax preparer or tax-preparation software. The latter can be economical, but the former can help represent you in front of the IRS, an important consideration.

·         Professional Fees -- It's easy to remember to deduct any business taxes and licensing fees you've paid during the year. But also remember to deduct the costs of memberships to business-related organizations and the cost of books and subscriptions used by the business. This can add up to hundreds of dollars a year.

·         Borrowing Expenses -- Many a small business requires a loan or line of credit to help get through rough times or to finance operations and growth. Make sure you account for and deduct all the interest you pay for business-related loans during the year. Don't forget to deduct any debt-related fees, including ones for applications, rate-reductions, appraisals and legal activity.

·         Insurance Costs -- No, you can't deduct life insurance premiums, even on policies for key people within the company, but there are plenty of business-related insurance costs that are deductible. These include insurance policies that cover business assets -- machinery, property, equipment and so forth -- and liability insurance for a wide variety of business-related contingencies. Also, be aware that self-employed individuals can deduct health care insurance costs directly from gross income rather than as an itemized deduction.

·         Maintenance and Repair Expenses -- If you have property you use to earn income, the upkeep and repair expenses are deductible. Normally, this includes the total cost of materials and labor. If you do the labor yourself, you can only deduct the cost of materials.

·         Office Supplies -- Sheets of paper and the clips that hold them together are deductible when used for business purposes. The same is true for staplers, pens and all those other supplies necessary to keep your business humming. Different businesses often need special supplies that are deductible -- printing ink for photographers, drugs and syringes for veterinarians, etc.

·         Management and Administration -- Any money the business spends on management and administration fees is deductible. This includes banking fees and the costs of tax return preparation.

·         Home-Office Expenses -- You can deduct many of the costs of running your business from your home. This includes a pro-rated portion of mortgage interest, utilities, insurance, repairs and depreciation. The IRS even provides a simplified option to quickly figure the tax deduction based on the square footage of the office. Check IRS Publication 587 for all the details.