With approximately one-third of taxpayers purported to wait until the last 30 days leading up to filing deadline, there is egregious opportunity loss with respect to potential tax savings were strategy to be employed all year through. Sadly, many home-based business owners are serial “late filers” and miss out on maximizing tax benefits that are unique to their type of business structure. In fact, most have no idea there are home-based business tax professionals that exclusively focus on strategy for this niche who can help these entrepreneurs realize tremendous tax advantages.
With this in mind, Meisa Bonelli, Managing Partner of Millennial Tax—the leading provider of tax services for home-based businesses and solopreneurs, offers these 7 tax saving strategies a home-based business owner should heed:
1) Get a Home Based-Business Tax Professional
If you would go to an optometrist for your eyes and a podiatrist for your feet, why wouldn’t you seek out a tax professional that understands the intricacies of your type of business? Choosing a specialized tax professional can save you thousands of dollars (in missed deductions) and time (trying to learn pertinent IRS regulations). Do-It-Yourself software can’t do it all and software is only as good as the person using it. If you’re in business, leave maximizing your savings to professionals that can help you.
2) Choose the Right Entity for Your Business
Per the Global Entrepreneur Monitor Report, 69% of all start-ups in the United States are home-based businesses and 59% of established businesses more than three and a half years old continue to operate as home-based businesses. If you’ve decided to start a business or maybe you have been running one for a while, then become official. Let your county, state, and the federal government know that you’re in business by registering your business within your state under the entity type that best suits your business goals. Remember, there isn’t a one-size fits all for home-based businesses, so make sure to consult with your tax professional or an attorney about the best business entity for you.
3) Audit Proof Your Business
Audit proofing your business means more than just saving your receipts. Depending on the type of home-based business you operate, you may need to keep calendars, mileage, and personal use logs. All home-based businesses aren’t created equal, so speak with your tax professional about what you can do to make your business in particular tax compliant.
4) Get a Second Look
In 2012 (for the 2011 filing year), nearly a quarter of a million individual business returns not claiming the Earned Income Tax Credit (excluding farm returns) were examined by the IRS and assessed additional taxes to pay after review. Many tax professionals offer complimentary consultations regarding their services and will take a look at your prior year’s returns. If the IRS is going to make sure they don’t miss a dime, then you should make sure you don’t miss a deduction.
5) Tax Planning is Year-Round
If your business isn’t seasonal, then you need a year round tax plan, strategy, and procedures not to mention a professional that’s available. When you have a simple tax situation, it is okay to check on your taxes once a year if not much has changed in a year (e.g. purchasing a home). However, if you’re running a business, the tax implications of your business’ decisions are a 365-day consideration.
6) Start a Retirement Plan
The government makes it very advantageous for home-based business owners and solopreneurs to save for retirement. Even if you’re just starting out, planning for your future is one of the best savings strategies. Take full advantage of the plan that best suits you and your long-term goals.
7) Have Integrity
It’s not a deduction you’ll find in an IRS publication, but running your business on the up-and-up is good for your bottom-line. Tax fines and penalties for not running your home-based business like a real business are stiff! Seek out the information you need to operate a successful home-based business and consistently follow the appropriate rules and regulations.
Internal Revenue Service Data Book, 2012, “Examination Coverage: Recommended and Average Recommended Additional Tax After Examination by Type and Size of Return, Fiscal Year 2012” – Page 22
Photo credit – Lisa Ramsay Photography