I know that tax season is still not for a few months, but I thought posting something about this now would help save time when tax season hits. That way it will give you time to figure out and organize some of these little things. Every little bit helps! Sometimes, saving money on your tax return comes down to little more than keeping good records. And that means tracking all those little expenses, because they can add up throughout the year. Sure, you know to deduct that new computer you bought, and the money you paid the accountant, and you’re even taking your home office deduction. The question is, are you capturing all the small expenses, too?
Frequently Forgotten Expenses
It’s staggering how much goes into running a small business, and how quickly things can become tangled between business and personal accounts – especially for sole proprietors. Think about it. You’re doing your grocery shopping and remember you need a new desk calendar, so you toss one in your cart. Or you’re Christmas shopping on Amazon and see a good deal on printer ink, so you stock up. Or maybe you’re meeting a potential client for breakfast and while you remembered to deduct your meal, you forgot about the mileage to get there.
These types of common but small expenses can quickly add up to a major tax deduction. The trick is remembering to deduct them, and keeping solid records. Some of the most common (and often overlooked) business expenses include:
- PayPal and other payment processing fees. If you get paid via PayPal, then you know they charge around 3% of each transaction for the service. These fees add up fast, so make sure you’re keeping track and adding them to your tax return as “bank fees.”
- Dues and subscriptions. Do you belong to paid forums or membership sites related to your business? These charges are deductible as well.
- Office supplies. This includes small stuff like paper and pencils and printer ink, along with big-ticket items like furniture and computers.
- Domain names and hosting. Your Hostgator bill, GoDaddy purchases, etc.
- Advertising. Whether you do pay-per-click via Google or Facebook, buy solo ads on mailing lists, or pay for post placement on other websites, it’s all deductible. And don’t forget your mailing list provider!
- Commissions. Do you have affiliates? Deduct those payments!
- Milage. Do you have to drive somewhere to meet with clients? To the office? What about to the store for supplies or even to the post office to mail things for your business? It’s dectable if you keep track of it! I’ve foud the best way to keep track is through apps. I hightly recommend using Milebug. It has done a fantastic job keeping track of my milage, I can store different locations and information about which vehicle I’m using, and I can even have my milage spreadsheet sent strait from the app to my email with all the information I’ll need at tax time.
Keeping Good Records
The key to making the most of your tax deductions lies in keeping good records. For most small businesses, the simplest solution is to use a software program set up specifically for this purpose, such as Quickbooks or Peachtree. Another option is Outright. It’s extremely easy to use and you can connect your paypal and other parts of your business to it so it will automatically update. No matter what solution you choose, though, make sure you consistently record your expenses. The last thing you want to do is scramble at the end of the year to find receipts and enter data. That would be a nightmare.
Instead, set aside time each week (or more often, if necessary) to update your books. If you find it overwhelming and you tend to put it off, consider hiring someone to maintain your accounts for you. Remember – what you pay him or her is deductible as well!
Finding all those hidden expenses can mean the difference between a huge tax bill and one that is more manageable. While the things listed here will get you started, it’s a good idea to also speak with a tax professional. Make sure he or she fully understands the nature of your business, so he or she can ask the right questions and make appropriate recommendations for your business write-offs.
For more information on staying organized and keeping track of your expenses, feel free to contact me. I know it can get overwhelming, but I can help and give you more time to do things that are more important to you.