As a sole proprietor who is a specialist in your own field, one of the challenges that you can often run into is how to manage your tax responsibilities. After all, your expertise is in your business area, not in tax filings or accounting. One of the best things you can do is to work with a local accountant to handle all of your reporting, account management, and tax filings. Working with an accountant may be the best way to save you money over time, but here are a few things you can consider now to help you reduce your tax liability from the start.
Personal Deduction - Home Office Savings
If you have a space inside your home that's exclusively for business use, you can write off the costs associated with that portion of the house as a tax deduction on your own personal taxes. The home maintenance costs, utilities, and other ongoing costs for home maintenance can be broken down into a cost per square foot, then calculated for that space based on the actual square footage. Just make sure it's exclusively for business use, otherwise it doesn't qualify.
Personal Deduction - Vehicle Mileage
Like many small business owners, you probably use your own personal car to do a lot of business-related errands. Every time you do something business-related in your personal vehicle, you can log the mileage associated and write it off as a tax deduction based on the mileage rates for the given year. Keep a detailed log of where you went, when the trip was, what it was for, and how many miles it consisted of in order to support this deduction.
Business Deduction - Family Payroll
One of the most convenient things about being a small business owner is that you can reduce your business tax liability without reducing your household income. If you hire your family members to work for you, you can pay them to reduce your business tax liability. If you're paying minors, they often won't have to pay income taxes at the end of the year.
You just have to remember that any family members you hire must be paid a fair wage that's equivalent to the salary for the role they're in, and they have to actually work for you - you can't just claim that they do.
Working with a small business accounting specialist is the best way to be sure that you're within your legal boundaries for any deductions, credits, or tax adjustments you claim for your business.