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Five Common Tax Breaks for Business Owners

Friday, January 29th, 2016

tax-breaks-for-business-ownersMany people today are enjoying the benefits of being their own boss and running their own company. According to the U.S. Census, there are currently more than 5 million companies with fewer than 20 people actively operating in this country. Whether you freelance or you have created a company that employs others, you can take advantage of a variety of tax deductions on your business income.

Owners of large corporations have accountants and tax experts working for them, but many small-business owners and freelancers cannot afford that added expense. If you complete your tax returns on your own each year, make sure that you are aware of the tax deductions you can use to save. Some of the most common business deductions are listed below.

Home office

According to Entrepreneur Magazine, approximately 52 percent of all businesses in America are operated out of the business owners’ homes. The home office deduction, therefore, is one that may be useful to many.

Of all available business-related tax deductions, this one is the most complicated. You can deduct a portion of your heating, cooling, home insurance, and rent or mortgage costs from your taxable income, based on the percentage of your home that is used for business purposes only. Recent changes in the tax code have simplified the calculation of this deduction by allowing business owners to opt to deduct $5 per square foot of office space, up to 300 square feet.

To be eligible for this deduction, you must have a room that is used for work-purposes only. If your computer is set up in a guest bedroom, for example, you may not deduct the entire room as a home office.

If the portion of your home that is used for your business is very small, many tax advisors will recommend that you forego this deduction. This is because the amount of money you will save will be minimal and not worth the complications that may arise because of an audit. If you are uncertain whether this business deduction is right for you, speak with a lawyer or tax advisor before making a decision.

Office Supplies

Whether or not you are deducting a home office from your taxes, you may deduct the cost of office supplies that you use in the course of your business. This includes everything from pens and pencils to toner cartridges for your printer. Be sure to save all your receipts. Many people find it very helpful to have a credit card that is used strictly for business purposes.

Some examples of things you may deduct include:

  • Writing materials including pens, pencils, markers and highlighters
  • Paper, notebooks, file folders, binders and notebooks
  • Business cards, stationery and promotional items with your business name on them
  • Office furniture, file cabinets and desktop telephones
  • Computers, flash-drives, recordable CDs and software
  • Envelopes, postage and packing supplies

Internet Connection and Phone

If you rely on email and internet use as a part of your daily business operations, you may deduct the cost of your internet service from your taxable business income. The same holds true for your land-line or cell phone service if your phone number is your business line. This includes cell phones that have a data plan.

Unlike a home office, it is not necessary that you use your internet or phone service for business purposes only. This is because your service most likely comes at a flat fee, regardless of usage.

Health Insurance Premiums

The Affordable Healthcare Act requires business owners who have more than 50 full-time employees to provide them with affordable healthcare options. Policies may be purchased by business owner or individuals at lower group rates through the healthcare exchanges set up by each state. For information about this is being offered by the SBA through scheduled webinars.

Whether you are providing health insurance to your employees or you are simply purchasing a policy on your own, you may be able to deduct 100 percent of the incurred expenses from your business income. However, there are some caveats:

  • If your healthcare expenses exceed your business’s net profits, you may only deduct an amount equal to net profit.
  • If you are eligible for healthcare coverage through your spouse, you may not deduct the cost of purchasing your own coverage.

If your spouse works for you, you may deduct 100 percent of the cost of insuring him or her as well as your children, but your spouse must be an actual, documented employee of your company and you must offer the same health insurance coverage plans to all of your employees.


People who drive frequently in the course of business are most likely to be aware of this deduction, but those who drive only on occasion often overlook it. If you make trips for supplies or to make deliveries, or if you drive somewhere to meet with a current or prospective client, you are entitled to deduct the mileage you have accrued while doing so.

If you plan to take this deduction, it is imperative that you keep extremely good records of your business-related driving. Record the date, your destination, the exact number of miles driven, and the purpose of your trip in a log or journal. When compiling your taxes, add up the number of miles driven. For tax purposes, you are entitled to deduct 56.5 cents per mile driven. This deduction includes fuel costs so you may not deduct the cost of gasoline as well.

Business Travel Expenses

If you take a business trip, such as to attend a conference or to meet with an important client who lives out of town, you may deduct the associated costs from your business income. These costs include:

  • Mileage driven
  • Airfare, train or other transportation costs
  • Hotel charges
  • Meals
  • Entertainment costs, if entertaining a client

Be aware that travel and hotel costs are 100 percent tax-deductible, but meals and entertainment costs are only 50 percent deductible. Also, you are permitted to deduct the cost of a gift to a client or employee but only up to $25 per person.

How to Organize Your Important Paperwork, Once and For All

Thursday, November 26th, 2015

The Ultimate Guide to Organizing Your Important Paperwork

First things first:

  • Invest in a good shredder. Identity thieves have been known to comb through trash (gross) to find bits and pieces of your discarded personal information. Shred any documents with personal information in them so they don’t get the opportunity.
  • Invest in a sturdy safe deposit box. On the other end of the spectrum, there are records you want to hold on to forever–so buy something solid to keep them protected from theft, water damage or fire. Also keep an inventory of what’s in there, and review it once a year.
  • Establish a trusted system, and stick to it. What good is an organization binge if the papers will just pile up in another week because you don’t know where to put them? Find what works for you–a bill box, a filing cabinet, a desk drawer–and stick to it.
  • Think about going digital. Consider receiving your bills and statements electronically to reduce the paper pile-up. Bonus: Many owner’s manuals and mail-order catalogs can be found online, so don’t feel too bad about tossing those.
  • Get organizing. Your financial paperwork can be divided into two big categories:
    • Short-term storage is for those papers you need to access fairly regularly, so keep them in a filing cabinet, drawer or accordion file. That includes stuff you keep for a year or less (like your insurance policies) and stuff you shred when you get rid of the item it relates to (think big purchases, like a car or a laptop).
    • Deep storage is for the stuff you need to access less frequently, but should still keep. These things are better off in a safe-deposit or fire-proof box. They include tax records (save these for seven years) and official documents (like your birth certificate and Social Security card).

Keep this stuff for a year or less:

  • Bank records, like your monthly checking and savings statements. If you reconcile your deposit and ATM receipts with your statement, you can shred them right after.
  • Credit card bills. Once you’ve paid ‘em, shred ‘em. An exception is when you need a record to support a charitable donation you will be deducting on your taxes.
  • Documents you need for your tax return. There are a lot of different forms and papers that may or may not apply to you. Here’s a list from TurboTax.
  • Insurance policies. Shred the previous year’s policy when your agent sends you a new one. (While we’re chatting, make sure to schedule an annual review with Melendez Insurance to make sure you’re properly covered and getting all the discounts you qualify for.)
  • Annual investment statements. Shred the monthly and quarterly statements from your 401(k) or IRA, but keep the yearly ones until you sell the investments.
  • Pay stubs. Keep these until you reconcile them with your annual W-2.
  • Most receipts. Let’s get real about receipts: If you’re not actually using them to track your spending or to reconcile your statement, you can pitch them right away. But if you plan to return a purchase or itemize a tax deduction, it helps to keep them all together in a folder.

Keep this stuff on file (but review it once a year to keep it up to date):

  • Paperwork from big purchases like furniture, electronics or appliances. This includes warranties, receipts and instruction manuals.
  • Loan documents. Shred closing documents for mortgage, vehicle, student and other loans when you pay them off. (Hooray! No more loan.)
  • Savings bonds. Save them until you cash them in or convert them to electronic form.
  • Vehicle records. Hang on to receipts, titles, registration information, and maintenance and repair records for as long as you own the vehicle.
  • Personal health record(s) for you, your spouse, your kids and– yes, even your pets. Keep a list of important events and information about each person’s medical history, like immunizations, medications, surgeries and lab/X-ray reports. Get started with this checklist from the American Health Information Management Association.

Don’t even think about throwing these things away:

  • Birth certificates
  • Death certificates
  • Marriage licenses
  • Divorce decrees
  • Social Security cards
  • Military service records
  • Pension-plan documents from both your current and former employers
  • Estate-planning documents, like wills, trusts and powers of attorney
  • Life insurance policies. Insider tip: It’s best to keep copies in at least two places to ensure your beneficiaries will find them.

Knowing the basics of what to keep and what to shred gave me peace of mind now that my personal information is under control. I’ll be the first to admit I’m no expert, but my system works for me–even if it’s not Pinterest-perfect. (On that note: Who honestly has a room fully devoted to chic, color-coded filing cabinets? Do these people sleep?!)

What Taxes & Healthcare Laws Mean for Small Businesses

Wednesday, September 25th, 2013

chess-boardThere’s a lot of talk about taxes and regulations and how changes to the system could impact small businesses. Recently, the chatter’s also included potential impacts from healthcare reform and the Affordable Care Act. But what do taxes and regulations really mean for you, your business or the small businesses you most often work with?

We looked for a florist, a mechanic and an insurance agent —small business owners who consumers work with everyday—to ask how they handle the changing news. We ended up talking to an award-winning designer, finding the American dream and learning what it means to be an American entrepreneur. It made it hard to remember we intended to talk about taxes and regulations.

In a nutshell, here’s how taxes work for a small business:

  • Tax season is every season for a business. They pay estimated taxes every quarter, based on what they made at the same time the previous year. At times, that means a small business owner may pay taxes on income they haven’t yet brought in. (This is especially true if they’re a single owner, partnership or S-Corp).
  • The Small Business Health Care Tax Credit offers a credit on a percentage of the premium a small business pays on health care for employees. But, it’s been controversial. The credit also doesn’t directly help with cash flow, one of small businesses’ biggest challenges.
  • Project-based or seasonal business owners, like contractors and repairmen, experience the tax/cash-flow crunch even more so than businesses with steady, recurring income. At any time, a business can appear wealthy on paper but have little cash to spend, invest or hire.
  • If a small business builds up its coffers for an emergency (such as needing a new air conditioner for an office building and retail storefront) or as money to hire a new employee, that savings, if high enough, can be taxed heavily.
  • One thing everyone can do to support small businesses is to shop locally. The more you buy within your own community, the more small businesses grow, regardless of taxes or regulations.