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As a business owner, you definitely want to maximize your tax deductions. In simple terms, a tax deduction is anything you spend or incur in your business that is an expense of some sort. It's a deduction against the revenue of your business, whether you consider it a cost of goods, an expense, or even a home office deduction.
Sometimes, tax deductions are not 100%. In particular, most people think about meals when talking about tax deductions. In 2021, all meals were only 50% deductible.
That being said, the business can pay for what it needs to pay for as long as it has a business purpose. However, within the tax arena, deductions are the things that get to be reduced from your income before tax is calculated.
The goal is to get as much as you can in tax deductions to minimize liability. However, that shouldn't be your only reason. If there's something your business should pay for but you might not get a 100% deduction for it, that shouldn't stop you from doing it.
It can be a complex world out there. Just be consistent and have a process in place and you'll be fine. Don't blame your bookkeeper if your tax return ends up not being right. You need to look at your books because you’re the one who’s going to have to stand up for them in the event of an audit, not them.
Therefore, understand where you need to allocate things and what expenses are what. Once you make those decisions, you won't have to make them again anyway.
In this episode, you will hear:
- What an actual tax deduction is
- Different types of tax deductions (merchant processing fees, legal expenses, shipping, postage, dues and subscriptions, etc.)
- Why it’s important to be consistent about the application of an expense
- Factoring in reasonableness that the IRS will look at
- Different types of expenses
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