The number one question I get from entrepreneurs (who typically have just been slammed with a large tax bill) is this: What one strategy should I implement to reduce my tax liability?
Luckily, it’s a pretty simple answer.
The most important step in successful tax planning is keeping up with your record keeping.
Not the super glamorous answer you wanted, is it?
But it’s absolutely necessary to have a system in place to track your income and spending month to month. You can do this on your own with a simple spreadsheet or bookkeeping software, or you can outsource it to accountants like us. But at the end of the day, a system needs to be in place!
If you are opting to DIY – check out our FREE comprehensive bookkeeping and accounting checklist for small business owners and entrepreneurs by clicking here!
Further, the expenses need to be properly classified into categories, such as advertising, repairs, meals, travel, etc. It’s also important to know that some business related expenses can’t be written-off for tax purposes.
For example, you can’t write off entertainment expenses even when they are for your business. And you can’t always write off large asset purchases, such as vehicles and equipment, because they need to be depreciated. You also can’t always write-off regular clothing, like a suit, even though you wear it on the job.
On the other hand, you could be missing out on a significant amount of “personal” expenses that can actually be written-off through your business (home office expenses, mileage, training/events, travel, etc.) See more possible tax deductions here!
After you have a great bookkeeping system in place, that’s when you are able to implement some of the more sexy tax strategies (that’s right, I used the word sexy in relation to taxes).
Morale of the story: put bookkeeping on your to do list! And if you’d rather focus on your business and let someone else handle the numbers, hire an accountant to take care of it for you.
Candace is the founder of NewWay Accounting and is a CPA who specializes in working with fellow entrepreneurs. She strives to take the fear and anxiety out of taxes and help empower small business owners to feel more confident and in control of their finances.
