Tax is always the balancing game, and part of running a business is not only to file your taxes, but to be responsible for the deductions. The deductions will assist your cashflow, your operations and are ultimately intended to help you grow your business. Unfortunately, we cannot get into all aspects of deductions, but we are going to discuss some common items.
So, let’s get start with COGs, or cost of goods sold, which is the amount of capital you had to spend to actually get your products and inventory. There are many aspects to this, including your wholesale price or your material cost. It also includes all the other associated items such as the shipping costs, the packaging and any associated taxes. Based on how you file your tax returns, the items may be placed into different classifications.
Any seller, physically or digitally, will end up paying fees to run their business. This is especially true online, as there seems to be fees coming from all directions including listing fees, banking and PayPal fees, operational fees, service fees, management fees and so on. Although the fees seem small, they will quickly add up. Depending on how you promote, gather these fees for tax purposes. It you promote and sell online, a lot of sites will provide you with a tax summary to assist you in gathering the fees.
Costs Associated with Business Financing
If you have received funding, whether it be traditional or alternative funding, it is key to evaluate what parts of the funding can be tax deductible. Some of these are interest, bank fees, legal fees, processing fees and any items related to your accountant or lawyer that assists you in these transactions.
Promotions and Advertising
The chances are you are promoting and advertising right now. Do you collect what you’re paying for? Some examples are online advertising like Google Adwords, Facebook etc, or physical advertising means such as newspaper, television, cinema and radio. Also, there are your business cards, website, pamphlets, presentations and any other type of promotional materials, all of which can be deductible from your tax. These items are often overlooked by business. Did you get your truck painted with your company logo? Did you sponsor an event? Do you make t-shirts, hats or other promotional material? They might count too!
Chances are you have to pay for shipping at some point. But what do you include in your deductible expenses? Make sure you include all aspects of your shipping: the boxes or envelopes, tape and even the transport to drive to the post office and back or a distributor if you use one. This can really be a large deduction for many businesses.
Training, Education and Conferences
Are you keeping up to date? You should be. There is always something new to learn about business and what you can do better. As part of keeping yourself up to date, you should invest into conferences, seminars, coaching, books, eBooks, video courses and more . As long as this education relates to your business, it often is deductible.
Employees, Contractors, Freelancers and Services
How much are you paying people to help your business operate and grow? Often it’s more than you think. Did you get professional advice? Did you pay for support or assistance? Did you hire a designer or tradesperson?. A lot of these costs are deductible at tax time.
Home or Work Place
So do you do work in your residential place? Do you have an area allocated for this work? Are you using specific resources just for the work? You might qualify as having a home office in addition to your other offices, as well as any storage you use in the home for your work. You might be eligible to deduct a portion of your rent or home expenses. A lot of businesses fall into this category but really don’t take advantage of it. This would include part of your electricity, water and any service fees you have to pay as well.
In the office, make sure you think about everything you use and need to really get the most out of your deductions. Consider what equipment you using, such as pad devices, computers, printers, GPS, your smartphone and so on.
So, I have never met a business owner that likes doing accounting or doing tax – that includes myself! But the reality is paying extra tax is the same as losing money, and I know all of these small items add up. The IRS is set up to make you responsible for your deductions, and that is just the reality. So you have to take advantage of that. If you don’t have time, think about getting a bookkeeper, tax attorney or accountant, or make sure you have really good accounting software, so this can help you deal with the complexities with just a few clicks of a button.