The deadline for filing your tax return is coming up quickly. A lot of small business owners depend on a solid refund to help get the year off to a good start. But to get that big refund, you have to claim every deduction and credit available.
Here are some simple tips to maximize your tax deduction this year.
Don’t overlook anything
Most people will know enough to claim a few, common deductions – mileage, office supplies, and other regular business expenses. But there are some tax deductions that you may be missing out on.
If you started your business last year, you can claim start-up costs like market research or office repairs. Anything you had to pay, up to $5,000, before you opened your doors can be claimed.
Fees paid to consultants, money spent on business books and your marketing can all be deducted as well. Some of these expenses may seem small compared to what you spend on, say, new equipment or software, but they really do add up.
Compare the ways to deduct your home office
The home office deduction is pretty well known. But did you know there are two ways you can calculate it? Until a few years ago, the only method was to fill out Form 8829 and file it with your Schedule C. But this form is notoriously complicated, so the IRS simplified this deduction by allowing filers to claim $5 for every square foot of their home office, up to 300 square feet. But that means you can only claim a maximum of $1,500. Those who usually get more than that, or who have never calculated a home office deduction, should complete Form 8829 and see if they are able to claim more than the simplified option’s limit.
New computers, office equipment, and off-the-shelf software
Section 179 of the IRS tax code allows businesses to deduct certain types of property as a business expense. While determining what property qualifies can get confusing, the only applicable property for most home-based businesses is office equipment, computers, and software. So if you buy a new desk or a new computer for your business, you can claim a 179 deduction for the year you put it into use. However, you can only take a partial deduction if you occasionally use qualifying property for personal reasons. For example, if you bought a $1,000 computer, and you only use it as a business computer 80% of the time, you can only claim $800 for your Section 179 Deduction.
Other tax payments
While you cannot claim federal income tax as a deduction, you can claim state and local income taxes. Since you are self-employed, you can also take advantage of the self-employment tax deduction as you have to pay both the employee’s and the employer’s contributions to Medicare and Social Security. Since you’re paying double here, the IRS allows you to deduct 50% of what you paid in self-employment tax.
Legal and professional fees
If you have an accountant or a lawyer and use them for your business, you can deduct their fees from your Schedule C. But, like all business deductions, whatever fees are claimed have to be for services that were ordinary and necessary for operating your business. If you hired an attorney to help you make a will, or went to an accountant for tax advice, you can’t deduct those fees. However, as a sole proprietor, you can deduct any fees paid to prepare your business’s taxes.
Ask for an extension
Anyone can ask for an extension to filing their returns, provided they’ve paid at least 90% of their tax burden. Since small business owners have to send in estimated payments throughout the year, that shouldn’t be an issue. Filing for an extension is super easy too – those filing their individual returns just need to fill out and send in Form 4868. This will give you six more months to work on your returns. Now, like I mentioned, in order to qualify you have to have paid at least 90% of what you owe. So this isn’t a way to get out of paying taxes for six months. Rather, it just gives you more time so you can properly and accurately calculate your returns and get back the money you are owed.
Despite what some may say, there aren’t any tricks to getting a big tax refund. At the end of the day, simply knowing what deductions and credits you can claim is your best tool. Unfortunately, that means you have to put in a lot of extra effort to uncover all of the deductions you qualify for. But as long as you take your time, do your research, and explore all of your options, you should have no trouble maximizing your refund.