Doing your own business taxes can be challenging. There are a number of deductions and rules you’ll want to consider so you can minimize your tax burden.
We selected a few of the most common areas of concern for small business owners and put them in this helpful checklist.
Go Over Your Books
There’s no better time to go over your books than now to check your P&L statement for any red flags, particularly if you work with a bookkeeper or accountant. While you can always make adjustments in the future, take time at the end of the year while some of the context is still fresh.
Gather and Organize Your Receipts
Expense reporting can be a real challenge in April if you’re opening a shoebox of receipts. The IRS may audit your filing for up to six years, so it’s recommended you keep a record of your receipts for at least that long. Most accounting software providers can even help you categorize your expenses automatically.
See here for some recommended vendors Gusto integrates with.
Home Office Deduction
One of the most popular deductions for small business owners (and yet not taken) is the home office deduction. The IRS provides two methods for calculating your home office deduction, simplified and regular. Since most entrepreneurs will use the simplified option, we’ll cover that here.
First, you’ll have to qualify for the deduction. If you meet the two main criteria 1) Regular and Exclusive Use and 2) Principal Place of Your Business, then your business is eligible. Check the IRS site for more information.
The simplified option uses a standard $5 per square foot (rather than actual expenses determined by records) to determine the deduction. To calculate your deduction, you simply multiply the portion of your home dedicated to home office use (capped at 300 square feet) by $5 to get your deduction, which is capped at $1,500 (300 x $5).
Check the IRS site for updated information.
Vehicle and Mileage Deduction
For some small business owners, operating a vehicle is part of their daily work. The IRS allows you to deduct your mileage based on two methods, actual cost or standard mileage rate.
The actual cost method requires you to keep detailed records of your business-related expenses, which is prohibitively difficult for many of us. If you choose to take the standard mileage method, the standard rate is 58 cents per mile for business miles driven in 2019.
In addition to mileage, you may deduct additional costs like parking fees and tolls. See here for more information on transportation-related deductions.
Payroll Taxes
The end of the year is a great time to gross up any fringe benefits for tax withholding purposes. Fortunately, Gusto can help you do this within our service. Check out our prior checklist on how to get your employees ready for the end of year.
Travel Expenses
Do you travel frequently for work? If so, you may be eligible to deduct the cost of the trip, including plane fare, lodging, meals and incidental expenses such as taxis, fees, and tips. For more information on travel expense deductions, check out the IRS site.
There are even more tax savings you may be eligible for. Check out the IRS site for more information on credits and deductions and Publication 463, information on Travel, Entertainment, Gift, and Car Expenses.
