7 Savvy Tax-Saving Tips For Small Business Owners in 2021

Being a small business owner is expensive. Income tax is the harsh reality that every one of you is facing each year. Giving off a big chunk of your income to taxes is really aching. Well, every penny counts when it comes to small business. How much ever you may earn, what you save is your wealth. 

You cannot expect all small business owners to be tax professionals. As you have so many things on the business pipeline, you might miss out on tax-saving tips and end up paying a significant amount of unnecessary taxes to the government. 

That’s why we have compiled a list of tax saving tips for small business owners to save your bottom line.

Befriend a Tax Software

Paper-based records are really out of question and have become obsolete these days. Even mini start-ups have befriended some form of software for bookkeeping and accounting. So bid your paper records, if you are still clinging to them. Manual paper-based records and ledgers are no more reliable as they have more room for errors and is a stretchy process. 

To diehard tax preparers, why would you sit at a table and fumble with piles of records to manually prepare taxes, while you can sit in the breeze and let the software do the tax preparation and filing for you? Using tax software for preparing and filing your taxes makes your work easier and clean. 

Track Expense Receipts

Maximizing tax deductions is possible only with a clear understanding of how you spend your money throughout the year. Properly tracking and organizing your receipts will help you understand the cash flow of your business and make it easy for you to log your deductions. Tracking expenses will also defend you in the event of an audit. Even if you hire the world’s best CPA, without proper records you will end up paying more than what you should be paying. 

In this automation driven world, software keeps close tabs on your spending throughout the year. Applications like PayTraQer can sync online payments with QuickBooks automatically without any need for human support and so you will have fresh and clean books all the time. With accurate books and records, you will never have a penny sliding through the cracks and can sit in the breeze when tax time rolls around. 

Deduct Your Work from Home

Small business tax saving tips do not usually include the work from home write-off. But there is a rapid culture shift in the way offices and businesses work. Most of the businesses are bound to work from home, as the global pandemic grips and quarantines us. So, if you have established an office set up at home, you can write off the cost of set up like painting costs, a percentage of mortgage interests and real estate taxes that are of the business use of the residence. 

Most small businesses hesitate to file tax deductions on home offices, but it is no longer the road not taken. It is one of the legal and attemptable legal tax saving ideas. Provided the proper and qualifying records, you are legally eligible to get tax deductions for your home office. However, the records for your home office should get qualified for a tax deduction. You must use your home regularly and primarily for your business, like meeting clients or customers regularly. This place (even though need not be a separate room) must only be used for business purposes and not for personal use. If your home office fits into such lines of tax deduction liabilities, you can apply for a write off with legible and reliable records. 

Don’t Ignore Your Business Utility Expenses

One of the major tax saving tips for small business owners is to include their business utility expenses. As a small business owner, you must be using a phone and internet connection for your business. However, most start-up business owners do not use a separate phone and internet connection for business, you might be using the same phone for both business and personal use. Not a big problem. You can write off the percentage of the cost that goes to business use. For instance, if you use half of your internet for your business purpose, you can write off 50% of your internet expense for the year. 

You can also write off the cost of office supplies, like printers, stationeries, computers, business-related software. Not just solid material, you can also deduct postage and shipping costs. But keep in mind that you have to keep tabs on all the receipts and records to avail of your waive off. 

Reclaim Your Auto Expenses

You can deduct all the operational and maintaining costs of your car if you are strictly using it for business purposes. As mentioned earlier, if your car is for both business and personal utility, you can deduct costs that are related to the business utility of the vehicle. Or you can track the mileage of your vehicle whenever you go on a business trip or a long ride to meet a client and deduct the fuel cost for the same. If you have a driver, the salary that you pay for him can also account for the deduction.

Or let’s say you have a cafe that facilitates in-house delivery service. You will be providing your employees with vehicles to deliver your orders. You can also take the fuel cost of these vehicles for a tax deduction.

Keep Tabs on Carryover Tax Deductions

Tax deductions are not always ‘use it or lose it’ schemes. You might be eligible for a certain tax deduction this year but you might not have used it. There might be many reasons for it. But the question is whether you can carry over this tax break to the next year?

Absolutely, you can! But there are some rules to how and when to do so. You can sit with a tax professional or accountant to tap more on carrying over tax deductions. But you have to remember your choices of the previous year and the strategies you cultivated. You might miss out on the carryover in the hustle and bustle of tax season, which very frequently happens when you give over your records to a tax preparer. 

Tax relief for donations

Donating to a cause that you earnestly believe in is a really commendable deed to make a difference. As a way of appreciating the nobility of such services, tax authorities usually extend their full support towards charitable services. Donating is the best way to save tax, but keep in mind that only donations to registered charities are open for tax deductions. 

But donation in the form of any tangible materials does not qualify for tax breaks. Also, make sure to save the receipts of all your contributions to charity. Even if you have made larger contributions, you will not be qualified for tax deductions if you do not have proper and legible records.