Unavoidable tax time

May 2, 2017

Owning a business is a balancing act of investing in your business and remaining profitable. Tax time, whether you pay quarterly or annually, is not a favorite day. While we cannot make handing over your hard-earned money easier, consider the following to lessen the blow and keep money in your pocket.

Step by step

The first thing you need to do is find an accountant—a good one. If you think your accountant is not maximizing your assets and financial capabilities, go find another one. The accountant should work with you or your office manager/finance manager throughout the year to stay organized and anticipate tax law changes. Preparing for taxes is more than a once a year event.

On Jan. 1, you should have started a new pile of receipts/bills and logging them in Excel or accounting software like QuickBooks. You need receipts for office items, such as computers, copiers and scanners, which are tax deductible. Another tax break comes from software purchases, subscriptions to any industry-related publications and advertising expenses. Office furniture is on the deduction list, and you can deduct 100% of the cost in one year (a $500,000 limit) or a depreciated value over seven years (by using an IRS chart, not dividing the cost by seven).

As you drive from project to project, keep track of mileage, tolls, parking costs and any other related fees. Your mileage total was worth $0.54 for 2016 and $0.53.5 for 2017. If work takes you out of town or you attend an industry trade show, 100 percent of your hotel, airfare and life on the road costs (dry cleaning, car rental and tips) are deductible. Meals only come in at 50%.

If you work from home, you can claim your home office if the space is devoted to your business. Your home office can be part of a room, but you can only deduct the portion of the room that is office space; just measure your work area and divide it by your home’s square footage. This then creates a fraction of your home-related business expenses that include mortgage/rent, electricity, gas and insurance. Business telephone and cell phone charges also can be deducted.

Insurance, retirement, and Social Security

Health insurance is probably one of the hottest topics in the country right now. With rising premiums and associated costs, owning a small business and insuring yourself and your crews can be a major expense. Aspects of the costs to self-insure are deductible if you only insure yourself. However, the deduction has to be less than the net profit of your business, and you cannot deduct it if you can be covered by another plan, such as your spouse’s employer plan. If your spouse works for you, you have another option.

As an employee, your spouse’s premiums are 100 percent deductible, and you can add in dependent coverage costs. The rules are your spouse must truly work for you, so do not try to make it up, and you must offer coverage to other employees. Additional deductions for the cost of health insurance offered to employees are based on a sliding scale created by the IRS.

Setting up a retirement fund through a simplified employee pension fund (SEP IRA) or Keogh plan (a tax-deferred pension plan) has tax benefits. You can deduct your contributions, which will be $54,000 for 2017. So you can put money away for the future while also saving now.

Social security contributions do not bring such good news because you have to pay double contributions as an employee and employer. You do, however, get a bit of a break in the end because you can deduct half of the contribution.

Get help

Tax laws and rules change constantly. It is not your job to follow them or know every way to save money as a business owner. It is your responsibility to find a trustworthy accountant who will work with you and your staff to maximize your hard work and profits.

(Although such an accountant reviewed this, please seek the advice of your own accountant regarding any information here.)

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