Yesterday, we tackled the organizational part of getting your taxes ready. Today, I want to share with you my tax-saving tips. Like I said, I’m not a tax expert. (You need to hire one of those.) But, I do know a few things about saving money in the tax department. These tips are often overlooked and could save you on some of the dollars that you mail Uncle Sam each April.
“Write-offs”
A “write-off” is an expense that you can use as a deduction from the taxes that you pay the US Treasury. There are two types of write-offs:
- a business expense that hits your profit & loss statement
- an adjustment to your tax base (typically done directly on your tax forms)
It’s true that business expenses do lessen the amount of taxes you pay each year. But, an expense is an expense is an expense. It’s money out of your pocket. And, I don’t know about you, I’d rather have money in my pocket. The money saved on the tax is never enough to equal the expense. Depending on your tax bracket, a business expense of $100 may mean that you are paying $30 less in taxes. $100 is better than $30, don’t you think?
Something I often hear new business owners say is:
“Oh – it’s a business expense. It’s a great write-off.”
This makes me cringe. Don’t spend money just because of the write-off. The IRS is not sending you a check for this money. You won’t see it again. Spend the money because it’s a good move for your business, not because it’s a write-off.
This being said, there are some write-offs that you might be missing out on:
Image: Creative Commons
1 – Car Mileage for Business Purposes
This is an amount that your tax accountant will put as a deduction on your Schedule C (the tax form used for businesses) and is not typically something that you input into your tax accounting (or affects your profit & loss, unless you are reimbursing employees). This amount gets deduced from your business income, lessening your tax base. Depending on your tax bracket, you could be paying ~$300 less in taxes because of this. Cha-ching!
How to track your miles…
Remember, if you are audited, the IRS will want to see an actual log showing the travel you made in the tax year. Here are some easy ways to keep track of your mileage:
- Keep a mileage log in your car. A little notebook is just fine!
- Track the starting point, end point, and how many miles you traveled.
- Note the order of business and whom you met with.
- Milebug and Pocket Mileage are 2 iPhone apps that make the tracking easy-peasy. (These also have reports that you can export to Excel.)
Keep this for your tax accountant so that he or she can adjust your tax report to indicate your mileage.
Shady areas:
You cannot write off your car payments as a business expense, claiming that your car is used for business purposes unless your car is indeed used for 100% business. The IRS isn’t too easily convinced by this unless they see something on your car that indicates it is a business vehicle. An example of this is a florist delivery van that has the business name emblazoned on the side.
You cannot write off the actual gas used in your automobile. For the IRS, it is too difficult to determine whether all of the gas in the tank went exclusively to business meetings. Also, the mileage rate deduction will get you a better write-off because the rates are set to include wear and tear to your car, not just the gas expended.
Come back tomorrow! I’ll have some more deduction tips for your 2011.
by Michelle Loretta
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