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Small business tax strategies should be in place the day that you start your business. If you were not so lucky to start off on the right foot, now is the best time to start working on improving your strategy. The first thing to realize is that, according to the IRS, the largest problem is not that small business owners are dishonest but that they are disorganized. Record keeping is the first and most vital component of your tax strategy. If you are to find success in getting that tax bill down or to keep yourself out of an audit, you must take into consideration your record keeping methods and quality first.
There are a number of different small business tax strategies to take into consideration from this point. There are a wide range of things to consider here. As part of your record keeping, have a category for each of these topics, separate from the others.
- Professional fees
- Travel
- Rent
- Car expenses
- Utilities
- Entertainment
- Advertising
In looking at these categories, the IRS is most likely to target you for an audit based on the deductions you claim for travel, car expenses and for entertainment. Having documents to back this up is critical.
The tax deductions for a business sole proprietor are going to be somewhat different from one line of business to the next. The IRS defines a deduction as anything that is ordinary, necessary and reasonable for your business. In that, it requires that it be used for trade or business solely. One area in which this comes into play is at the home office.
Tax deductions for home based offices can be confusing. If the home office is used solely for the business, it may be a write off for you. For that to happen, each item in the office must solely be business related. If you use your computer for personal use as well as business, it can not be a deduction. With your car, only the portion in which you use it for business can be written off.
Tax deductions are trade related, of course. The tax deductions for a small construction business are different than that for a small store, but those trade rules will apply. When looking for tax help in your field search for trade groups in your area that you can join. These are great places to build a network of support not only for tax help but general help in running your business.
The best thing for any small business owner to do in planning their small business tax strategies is to work with a qualified and experienced tax advisor all year round to insure that they have the most up to date and detailed tax information to use. With a little guidance and organization taxes become a lot more bearable.
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