7 Tax Tips for Small Business & Entrepreneurs

For small businesses and entrepreneurs, every penny counts. One way they can save money is to use a business model that allows them to take advantage of the opportunity to pay less in federal, state and local taxes. There are a number of tips small businesses and entrepreneurs can use that can lower their taxes significantly, increasing their bottom line and giving them more money to invest in equipment, marketing and infrastructure. The following are 7 tax tips that can provide great benefits for both small businesses and entrepreneurs.

See if you pre-qualify!

1. Deduct Startup Expenses

If you keep your receipts in order, you can deduct as much as $5,000 spent on startup costs, infrastructure, and research and development. The cost of office furniture, computers, office equipment, and everything else use needed to get your business off the ground are tax deductible if they are properly documented. Even a portion of the money entrepreneurs and small businesses spend to acquire the property from which they run their business can also be listed as a deduction when they are doing their tax returns at the end of the year.

2. Property Depreciation Is Tax Deductible

Many businesspeople see the depreciation of their vehicles, office equipment and everything else they use to run their business as a bad thing.

However, for entrepreneurs and small businesses the depreciation of their business property can actually be a valuable tax deduction. Depreciations can be listed on tax returns when filed with the federal, state, or local government. Small businesses and entrepreneurs have two options for how they can use the depreciation of their property as a tax deduction. They can claim all of the depreciation in one large chunk or take smaller deductions over a number of years.

3. Properly Handle Payroll Withholding

Small businesses and entrepreneurs have two options when it comes to hiring and payroll tax withholding. They can list the people they employ as independent contractor responsible for paying their own taxes or classify them as employees and withhold the required taxes from each paycheck.

The key is to clarify which method the Internal Revenue Service requires you to use for specific types of employees. Sometimes, businesses are required to make periodic payments and filings in order to be in compliance with the applicable tax regulations. It's essential to make sure no filings are late or missing. This can lead to an IRS fine.

Hiring a professional accountant to make sure the small business or entrepreneur provides all required data and meets all filing deadlines is a wise investment. Plus, a percentage of that cost is tax deductible. This can save time and money in the long term and prevent the business owner from dealing with the stress of properly handling tax withholding for their employees and independent contractors. Failure to do so properly may make it appear that a business is trying to avoid paying the appropriate amount of taxes. This can result in a fine being levied from the IRS.

4. Don’t Mix Personal and Business Finances

A common mistake many entrepreneurs make is using their personal accounts as business accounts. This type of misappropriation of funds can lead to tax problems. Keeping business and personal finances separated enables entrepreneurs and small businesses to better track their spending and be able to identify and document all their expenses and revenue.

Failure to do so can lead to confusion and inaccuracies at tax time. This can lead to unnecessary tax audits and penalties if the IRS decides the small business or entrepreneur is guilty of misappropriating funds.

To avoid this, open a business account and use it for all business transactions.


5. Identify All Available Deductions

Research shows over 90% of small businesses and entrepreneurs overpay when it comes to their taxes. That's because they fail to take advantage of all the deductions to which they are entitled. For example, entrepreneurs who use a home office can deduct a percentage of their utility bills, homeowners insurance, and mortgage interest. They can also deduct some automobile expenses like car insurance, gas, and automobile maintenance costs as business expenses. The key is to get professional help and do some research to identify all the deductions to which you are entitled.

6. Using Tax Software Can Help

Using tax software can save time and money. There are a number of excellent tax software applications that can make it easier to track business income and expenditures and more accurately plan business tax filings. The tax software can help businesspeople identify if they are entitled to certain tax deductions or a tax refund. Many of the tax software applications are so helpful they can eliminate the need to hire a professional tax preparer.

The software also enables entrepreneurs and small businesses to avoid the headaches and hassles of manual tax filing and allow them to accurately file their tax returns online.

7. Start Building Your Retirement Nest Egg

Making early payments to a retirement fund can help small business owners and entrepreneurs in two ways. People under age 50 can put up to $5,500 a year into an IRA. People over 50 can put as much as $6,500 or more into a retirement account. The other benefit is that the money is not taxed until it is withdrawn when the businessperson retires. The money placed into an IRA plan can be combined with a 401(K)and still be tax exempt. For an entrepreneur or small business owner, this is the best of both worlds. They get to save money on their taxes today and have a larger retirement nest egg in the future.

About the Author

Dana M. Ronald graduated from UCLA with a degree in Economics, and now operates as an Enrolled Agent, which certifies him to represent all types of taxpayers before the Internal Revenue Service in the states of California and Nevada. Dana is also one of the leading authorities in tax debt and resolution representation. He’s a founding member of the Tax Freedom Institute, a national organization of tax professionals.

Tax Crisis Institute