Entrepreneurs always ask “how can I reduce my taxes?” My answer, “It is based on how you record and track your business expenses and your source of income.”
Here are 16 business accounting, tax and legal tips for any small businesses which may be used when getting your business finances in a gear during the year:
The home office dimension. As an entrepreneur it may be difficult at times to get your own space. It may be wise instead to find a space at your home and dedicate it as your office space. Thereby, being able to deduct a portion of your housing costs into your business.
- For example: Your workspace is 1.3 feet by .9 feet = 1.17 sqft; your house’s living space is 2,500 sq ft. Your work space is .05% of your entire floor space. The market value for properties within your area is $5 per sqft. Hence, your rental value will be 1.17 sqft *$5 = $5.85. If upgrades are made such as painting, lightning and office furniture things too can be deducted as well.
Home Utilities. Since your office is at home, therefore it’s only fitting that a portion of your utilities bills such as electricity, internet and water rates be incorporated as part of your business expenses. Your workspace is 1.3 feet by .9 feet = 1.17 sq ft; your house’s living space is 2,500 sq ft. Your work space is 0.05% of your entire floor space. Hence, you will do as follows:
- T&TEC bill for February to March $530.50. Your business’ usage will be (0.05% * $530.50) = $0.25. The same will be done for each expense above.
- Apply 25% of the listed expenses as the operating expenses of the business. For example: T&TEC bill for February to March $530.50. Your business’ usage is calculated as ($530.50*.25) = $132.63
Office Supplies. As home based entrepreneurs, we forget the importance of taking account of the money we spend on paper, ink toner, paper clips that you purchase for your business use. Even the ipad or tablet, you will use to do your videos for youtube and presentation. These are all valuable expenses to your business. For instance, if you use the tablet or laptop for both personal and business. It this case, you will have to portion that expenses for your business such as 60% or 80%.
Foreign Travel Expenses. Let’s talk about those foreign trips you may take to go to a seminar to help better your business or improve your knowledge on your business such as master degrees. You will need:
- Transportation costs such as the plane ticket, bus fare or taxi fare, car rental or airport parking.
- Accommodation at the hotel or motel you stayed at
- Meals for the business days. You can deduct 50% of the cost towards the business.
Vehicle and Travel Expenses. Most likely you are using your family vehicle as your mode of transport to and from your clients when you have meetings to attend. Do you account for all gas fills you make during the month. I suppose not because most entrepreneurs I speak to do not keep these bills, they always throw them away.
On the other hand, you may not own a car, you travel via public transportation. What you need to do it keep track of your travelling fares to and from your clients or meetings and tally it up at the end of the month.
It is also important to take account of your vehicle repairs as well such as tyres changes or even radiator rebuild or even a total paint job of the old faithful vehicle which serves you so good for your business and family.
Business Meetings. So you go out with a potential new client for brunch or even lunch. You can only deduct 75% off the entertainment bill, not the whole thing. For example: You go to lunch with a client, the bill came to $100 including tips and taxes, you can also deduct $75 as your business expenses. At the back of the bill at the client’s name as well as a few notes on the business matter discussed.
Upgrading the home office. You are in business for a little while, so you decide to upgrade the piece of office which you are sharing just off your family living area. You have save a little extra funds to be able to build 10 feet * 12 feet room equaling to 120 sqft of office space.
You purchase new desk, office chair, filing cabinet, waiting chair, bookcase and many other items which can all be deducted in your business.
If you do not have any intention to bring clients to your home office, I suggested you don’t spend too much more of your home office.
Health Insurance. It is important to have health insurance but as a sole trader or partnership, insurance business usually sees this type of business as a risk. I will suggest to do some research until you find the better insurance which suits all your business needs.
Important to note, you cannot deduct health insurance as an expense through your spouse or partner’s health insurance at their place of work.
Pension or Annuity Plan. Most entrepreneurs, I speak to don’t even concern the importance of pension or annuity plan as a small business owner or freelancers. They always say cashflow is tight. An annuity or pension plan is not for the now but for the future. It is a great for lowering your taxes. I suggest that you set up a plan at the lowest minimum value you can and as time go by you can increase the value or open another pension or annuity plan at a different maturity age or period. I personally have two pension plans.
Turn charitable donations into business expenses. Charitable donation is a great tax benefit to help reduce your taxes. However, if you give money to charity in exchange for advertising, it’s a business expense.
Defer Income, if necessary. You can defer your income by shifting your billing especially if you believe you taxes will be too high for you to pay off. I suggest you keep proper track of your income and expenses throughout the year using adequate accounting software. Please consider consulting with an accountant like myself before going further.
Increase expenses, if necessary. Just as you can defer your income, you can increase your expenses during the year to also deduct your taxes. As mentioned above annuity or pension plan, you can increase your figure to the limited value of $12,000 per year. You can make some year-end business purchases to reduce your business taxes such as a new vehicle.
Business Structure – Proper Records. It is important to keep proper record of all your business activities. You can do this using Sage, QuickBooks if you are at your desk 24/7. If you are an on-the-go entrepreneur, a cloud based accounting software such as Wave, GoDaddy Bookkeeping or One Up may better suit you. Above all remember, you must keep at least six years of business activities at any given time. For example: we are in 2016, you should have business records for 2010 to 2015 at your business premises.
Tax Obligations. You must know your tax obligation when you are in business.
- Sole trader must pay business levy which is now 0.6%, health surcharge for employees and self and personal taxes 25% on your chargeable profit earned. Remember, you can benefit from the 11 tax credits or allowances as an individual.
- Partnership must pay green fund levy which is now 0.3% and health surcharge for employees and partners. Partners must file their individual tax return and include the profit or loss from the partnership. Remember, partners benefit from the 11 tax credits or allowances as an individual.
- Limited Liability must pay business levy which is now 0.6%, green fund levy which is now 0.3% and health surcharge for employees and directors. Corporation tax valued at 35% of the company’s chargeable profits earned.
- All tax return should be filed and paid on or before April 30th to avoid penalty and interest. But you can file your tax return no later than October 31st.
- Business Levy Exemption is available for certain companies, including petroleum companies and companies whose annual turnover is less than TTD 360,000. The levy is a non-deductible expense for corporation tax purposes.
- If you have employees file TD4 remittance form on February 28th/29th and give your employees their TD4 slips.
Legal Obligations. Limited Liability and Non-Profit companies please ensure you pay your company’s annual return at the required time. “What is an Annual return? It is the incorporation or birthday of your organization. Late payment is calculated after the first thirty days which is three hundred dollars for every month or part thereof.
Get Advice from an expert. Hire an accountant who can take away the hassle of bookkeeping and properly record your business’s expenses. It does not mean that you do familiarize yourself with your accounts but it means you have time to focus on your business while still ensuring your books are up to date.
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