As the New Year rolls around, many of us may be a little low on cash after the busy holiday season. To make matters worse, tax season is upon us with many of us already anticipating the big chunk of our earnings we'll be handing over to Uncle Sam. While it is important to pay one's fair share to the government, new businesses owners can claim a variety of deductions for operating expenses and can save thousands of dollars in taxes this year.
When deducting taxes, start with the bigger items and work your way down to the everyday items such as office supplies. The first thing you want to deduct is your place of business. If you lease an office building, deducting monthly payments can save tens of thousands of dollars annually. Even if you work from home, which is how many new companies get started (especially today with the growth of online business) you can deduct part of your mortgage and utility bills. For example, if you live in a seven room house and one of those seven rooms is your office, you can deduct 1/7 of your monthly mortgage and utility bills. Next, you want to deduct any automobiles owned by the company. You are allowed to deduct payments from any automobiles that are used primarily for business expenses. For example, if you own a landscaping business and own two pickup trucks, those are deductible. Similarly, if you run a sales or other "white-collar" firm and frequently use an automobile to travel to your client's place of business, the cost of that automobile can be deducted as well.
Next, be sure to deduct other equipment used for business purposes. If you operate a restaurant, you can deduct the cost of tables and chairs, all kitchen equipment, cash registers, bathroom facilities, and anything else used by the business. Travel expenses should also be itemized. A business trip can cost well over $1000 or $2000 with airfare, hotel and other expenses. Hence, a business can often save tens of thousands of dollars in taxes by writing off airfare costs, hotel costs, and other expenses incurred during business travel.
After you have deducted most of the larger expenses, you want to take the time to deduct smaller expenses, such as all office supplies, utility bills, and anything else used by the business on a day to day basis. Although it may seem trivial to deduct a stapler or box of pencils, these deductions quickly add up and can save you a few thousand dollars each year in taxes. However, when making any type of deduction, be sure that you have all of your receipts and paperwork so all expenses can be verified by the IRS.
Unlike employees, businesses are only taxed on their profits, so it is beneficial to "write-off" any expenses incurred by the business as tax deductions. The closer your profit is to zero, the less you are taxed.