You probably know about small business tax deductions like software, office space and employee salary. If you keep detailed records, you could also take advantage of other less common deductions. Reducing your overall tax obligation can help you save money.
1. Tax and Financial Planning Service Fees. The fees you pay for tax preparation or financial planning related to your business can be deducted on your Schedule C. Choosing a Schedule C over itemized deductions offers this advantage. This deduction is typically taken the year after you have paid for the service.
2. Hire Your Kids. Hiring your kids can shift some of the tax burden to the child's lower tax bracket. This works best for children ages 8-17. Payments to children over 17 will require the parent-employer to pay withholdings.
3. Internet Presence. Expenses incurred for domain registration, website hosting, and webmaster consulting are tax deductible. Be sure to keep copies of your paid bills for each of these services. These services are typically billed electronically so you may want to save items in a folder in your email inbox for business-related expenses.
4. Equipment Purchase. Deduct business-related equipment in the year it is purchased instead of choosing depreciation (Section 179). However, not all equipment types are allowed to take this deduction. Be aware, the new tax law may calculate these purchases differently than in past years.
5. Contract Labor. Many businesses use independent contractors for labor. The cost of this contract labor is tax deductible. Be sure to issue a 1099-MISC to your contractors if you pay them $600 or more. For contractors who are paid through PayPal or credit card, the payment processor is responsible for issuing a 1099-K.
6. Home Office & Utilities. Home office and utilities include a portion of rent, utilities, repairs, and Internet service. Each of these services can be used for personal or business so you'll be claiming a percentage of usage based on your actual business usage for each.
7. Professional Development. Education and professional development that relates to your line of business is deductible. This includes conference fees. Professional development deductions can be used to offset the cost of attending such events. You may even have the option to claim at least some of the travel expense.
Financial advisors are best equipped to help you sort through the current tax law and how it applies to your business. Organized record keeping can make all the difference. “None of this matters if you're not organized. A tax professional may be in a better position to interpret the facts and apply the law to you." says Steve Stanganelli of Clear View Wealth Advisors, LLC.
The steps in this article should not be construed as legal advice. The laws change frequently, and it's important to get input on big decisions from a licensed attorney.