Even one small business deduction can save a business a lot of money in taxes, because deductions decrease the amount of taxable income you have. Many deductions are often overlooked and errors are made, which can cost a small business owner a lot of money. Here are some deduction errors you'll want to avoid:
1. Capital Expenses
If you make long term purchases for your business such as property, equipment and even software that improves your business and increases production, you can claim it as a capital expense. You can also claim deductions on your small business taxes each year for depreciation of those assets. It is important to know the difference between capital expenses and business deductions. You can take a free course given by the IRS that will help you avoid errors when claiming capital expenses.
2. Automobile Deductions
There are many automobile deductions that are overlooked each year by small business owners. If you use your car for work, you can deduct mileage, insurance costs, maintenance and any hotel stays that are necessary for business trips. Keep appropriate mileage records as well as the percentage of time your car is used for work. This percentage will determine how much in insurance costs can be deducted from your taxes.
Don't give the government an interest free loan every year. If you are getting a big refund back, that is what you are doing. Instead, put that money into a high interest bearing account that will increase over time, rather than over-paying taxes so you can get a refund back.
4. Save All Receipts
You may think that $5 gas receipt is not important, but over time, those small receipts can add up. Avoid throwing away or losing receipts below $75 which could add up to a big tax deduction.