Reducing your tax liability comes down to planning. There is no other way around this. There are specific things you have to do in order to take advantage of reduce taxes. I will cover a few things today, but let me start off by saying you will need to keep GOOD and ORGANIZED records.
This takes :
These may be new skills some of us are picking up or some may be good at already. Being in business for your self consist of wearing many hats. That includes the accounting hat as well. We tend to take on the sales hat, marketing hat, branding hat or even customer service hat. For some reason, we neglect our accounting duties. Accounting is just as important as the other duties. What does increasing our sales matter if we are going to pay the IRS most of it. It is great to create success but we have to remember to manage it. If you cant afford an accountant full time that is OK. There are things you can do to help them oversee you records, however even if you have an accountant you should still keep good organizes records.
So three things you will need to do to reduce your tax liability:
1.) Keep all expense receipts
You have to keep all your business receipts. Let your accountant tell you know if something is tax deductible or not. when you keep all your receipts you ensure that you are not missing any expenses.
2.) Use a software
PayPal is not enough. Excel is not enough. You will eventually need an accounting software. Just like you need email marking software, or branding software, scheduling software, do not slack on your accounting software. It will help you stay organize and keep up with expenses in real time.
3.) Keep track of Personal mileage, business mileage and expenses.
Keeping track of your mileage is something most small business owners neglect. Usually because it is not an actual business expense, it is more of an added responsibility that gets by passed. However, you can add to your tax saving by taking advantage of this deduction. There are two different deductions. A standard deduction that uses about 54.5 cents per mileage or you can use the actually amount of your car expenses times business mileage usage. In order to take advantage of this you need to keep track of all your miles, your business miles and your personal car expenses. Although your personal car itself is not a deduction you will still need to keep track of expenses like oil changes, gas etc.
I hope this was helpful and motivated you to keep better records of your business in order to take advantage of tax savings.
If you will like additional information on structuring and managing your business check out this accounting checklist. Download it now and discover the major keys to managing a business.