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3 Ways An Entrepreneur Can Minimize Their Taxes

There are hundreds of ways for a small business owner to minimize their tax bill. Although the first two tips below may seem obvious, most small business owners pay too much tax because they are not 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 No. # 1: keep track of your mileage

Tax professionals are always amazed at the number of business owners who do not 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 guess, failing a commercial mileage audit is quite costly after adding interest and penalties.

Buy a printed log or small appointment book at the office and keep it in your car. Place it where you can reach it from the driver’s seat. Making the task quick and easy is the key to logging every kilometer traveled. 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 workplace to that location. Once you know it’s 6 miles from work to the office supply store, you can simply write OS.6 to your log every time you go the usual route.

For one-time business errands, you will need to enter the initial and final mileage; enter the difference in your mileage record. At the end of each month, total your miles and write that total at the bottom of the last page of the calendar. At tax time, add up those figures and you have your total business miles driven and documentation to support your deduction.

Tip No. # 2: track every penny of spending

If you don’t understand the tax code, you are missing deductions. By the time you have your taxes prepared, it is too late to do proper accounting. And, if you are not sure what you can and cannot deduct in the first place, you will always pay too much tax.

Whether you use a computer accounting program or record your expenses on paper, the tracking method is the same. You should get a receipt for every penny spent, put those receipts 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 the profitability of your business and can avoid being classified as a hobby industry. A hobby industry cannot take advantage of the business tax code.

Tip No. # 3: hire a qualified tax accountant

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

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

When you’re three times three, log every mile you drive, track every penny of spending, and work with a qualified tax accountant, you’ll pay less in taxes. And paying less taxes always increases the bottom line.

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