How to Reduce Your Business Taxes as an Entrepreneur
This year, doing taxes was more, taxing. I made more money and had more jobs as well. Thus Uncle Sam was not going to be looking at me the same as he did before. While completing the taxes, I decided to make note of things that all entrepreneurs should be doing throughout the year so that when tax time comes around, that things are much easier. Also wanted to include some of the things that I learned or already knew, that can reduce the amount that you pay in taxes throughout the year.
Attend conferences related to your business profession or industry. Conference registration fee, hotel, travel, and meals can count as business expenses.
Credit Card Fees
Do not charge your customers additional amount for payment with a credit card, PayPal, CashApp, etc. The fees that are charged by CashApp, PayPal, and credit card processors are considered to be business expenses.
With a $100 transaction, charging the customer 4% for paying with credit or digital payment results in a sale of $100.80. This is based on the processor fee of 2.9% + 30 cents (100 * 1.029 + 0.30 = 103.20). Multiply that times 1000 transactions and you end up with $100,800. Assuming no other business expenses, you would owe taxes on $100,800.
With a $100 transaction, not charging the customer an offset fee for credit or digital payment results in a sale of $96.80 using the same processor fee mentioned above. Multiply that times 1000 transactions and you end up with $96,800. You write off $3,200 in fees as a business expense. With no other expenses, you would owe taxes on $96,800 and your customers would also benefit because you would be charging them less for your services or goods. The $3,200 difference could put you in a different tax bracket, thus you could pay a lower percentage in taxes overall.
Track your mileage when visiting customers and clients. What I did was to set up a Google Form that allows me to put the ending mileage, miles traveled, purpose, and date. When leaving to visit customers, I reset the trip meter in the vehicle. After returning from visiting customers, I complete the form. Then at the end of the year, I export the form as a spreadsheet and can use that to enter on my taxes.
Tools and Equipment
Tools or other equipment that you use for your business, should be paid for by the business. While the tools do not have to be 100% utilized by the business, they do have to have a use case by your business in order to qualify.
If you primarily create content with your business, the cameras, microphones, editing software, and similar items are considered business expenses, and can be claimed accordingly.
Money or items that you donate to a charity or non-profit can reduce your taxable income. Now you will not receive as much of an deduction like with business, but I link to think that every bit counts.
Automated Accounting Systems
Use an accounting system that can automatically the transaction information from your bank. This will help you when it comes to tax time, to better calculate the income and expenses that you incurred during the year. I signed up for mint.com and use that to categorize my expenses. You have to periodically login to Mint because they will only pull the last 90 days worth of information into their systems.
Others use systems like Quickbooks or hire a CPA that will do the accounting for them.
As a service provider, I do have to purchase materials to complete the work at customers’ homes. Sometimes it is small items like replacement wire nuts. Other times it is larger items like exterior doors. Either way, these items are also classified as business expenses.
These are some of the things that I have learned from this year in business and will apply them going forward. Wanted to share these thoughts in case other entrepreneurs are trying to figure out how to reduce the amount of taxes that they pay legally.