It's easy to get overwhelmed when you're an entrepreneur. With all your responsibilities, we sometimes miss some deductions that could have a significant impact on reducing our taxes. Here are some deductions that we frequently see omitted on business tax returns:
- Start up costs for new businesses. When you are investigating setting up a new business there may be significant costs that could be expensed or amortized. Some examples are travel and lodging costs, consultant fees, expert fees such as a CPA or attorney, meals and entertainment for meetings, mileage expenses and vehicle tolls (I'll write more on this in the coming weeks, as it's one of the most common mistakes entrepreneurs make). Also, don't forget state fees for establishing the business entity, and franchise fees.
- Cash expenses. Don't overlook expenses that you paid with cash. If these are ordinary and necessary expenses for your business, these expenses should be accounted for in the business bookkeeping.
- Credit card expenses. Like cash, you may use a personal credit card and not provide receipts to the bookkeeper. Keep receipts for everything.
- Wages and payroll taxes. If your business entity is an S Corporation or C Corporation, I suggest you consider paying him/herself wages rather than distributions or dividends. If this business is your 'primary job,' definitely pay wages rather than distributions or dividends. This avoids payment of self-employment taxes on the your personal tax returns and passes the payroll tax deduction to the business.
- Health Insurance. Depending on the type of business entity, many business owners miss the self-employed health insurance deduction on their personal tax return. This can be a significant deduction and include insurance paid for you as well as your family.
- Retirement Plan Contributions. Again, depending on your type of business entity, your business or personal tax return can be significantly impacted by retirement contributions over and above a typical IRA contribution. Businesses can establish inexpensive 401(k) plans including higher contributions for owners. Establishment of a SEP IRA is another alternative. These plans can result in significant deductions as well as increase your retirement savings.
- Interest. If you borrowed money to start the business, this loan should be recorded as a business liability and interest expensed accordingly. If you 'loan' money to the business, this loan should also be recorded as a liability with interest expensed. Promissory notes should be on file to cover owner loans to the business.