3 Ways a Business Owner Can Minimize His Taxes

There are hundreds of ways a small business owner can minimize their tax bill. Although the first two tips below may seem obvious, most small business owners pay too much tax because they aren’t tracking those two items correctly. As for the third tip, a small business owner rarely saves money by doing their own taxes. Read on to find out why.

Tip #1: Keep a mileage log

Tax professionals are always surprised at how many business owners don’t record every business trip on a mileage log. At about $.50 per mile, that bad habit can cost you hundreds of dollars in lost tax savings each year. And, for those who think they can only guess, failing a business mileage audit is pretty costly after adding interest and penalties.

Buy a printed log or small appointment book from the office and keep it in your car. Put it where you can reach it from the driver’s seat. Making the task quick and easy is the key to logging every mile. For regular trips, start by developing a list of 1-2 letter codes for common errands. Record these codes on the front of your mileage log.

For example, you can use P for the post office and OS for the office supply store. Next to each code, record the exact mileage from your place of work to that location. Once you know it’s .6 miles from work to the office supply store, you can just write OS.6 to your log every time you follow the normal route.

For one-time business errands, you will need to note the beginning and ending mileage; enter the difference in your mileage record. At the end of each month add up your miles and write that total at the bottom of the last page of the calendar. At tax time, add those numbers together and you’ll get your total business miles driven and documentation to support your deduction.

Tip #2: Track Every Penny You Spend

If you don’t understand the tax code, you’re missing deductions. By the time you’ve prepared your taxes, it’s too late to do proper bookkeeping. And, if you’re not sure what you can and can’t deduct in the first place, you’ll always pay too much tax.

Whether you use accounting software or record your expenses on paper, the tracking method is the same. You should get a receipt for every penny spent, put those receipts in a place where you can find them at the end of the month, and sort, total, and post each category on a monthly basis. Regular accounting shows the IRS that you are serious about making your business profitable and can avoid being classified as a hobby industry. A hobby industry cannot take advantage of the business tax code.

Tip #3 – Hire a Qualified Tax Accountant

There are thousands of people who offer tax preparation, but you need to find someone who is qualified and educates you on current tax law. If you’re in business for yourself, skip the national chains; many allow first-year preparers to make business statements. Most tax accountants are reasonably priced and better informed about how a small business can use the tax code to increase profits. Ask others in your profession for a recommendation.

But remember, even the most qualified accountant can get your taxes wrong if you don’t provide them with the correct information. It’s your job to learn as much as you can about what people in your profession can deduct and how to keep audit-proof records.

When you do three by three, track every mile you drive, track every penny spent, and work with a qualified tax accountant, you’ll pay less in tax. And paying less tax always increases the bottom line.