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Seven Tax-Saving Tips

You'll be kicking yourself on tax day if you miss these seven tax-saving strategies for small biz owners.

There are a number of tax-saving strategies small-business owners can use to create business tax deductions out of what would otherwise be considered personal expenditures. The following is a discussion of each of the major opportunities to make your life tax-deductible as an entrepreneur:

  • Your home: As a small-business owner, you may qualify to take a home office tax deduction. In order to qualify for the deduction, the use of your home office must be both "exclusive" and "regular." If you qualify, you may deduct certain other expenditures, such as depreciation and the indirect expenses of operating your home, on a pro-rata basis. Even if you fail to qualify for the home office deduction, you are still allowed to deduct other business expenses that you incur while operating your business out of your home.
  • Your car: If you use your car in your business, you can deduct the costs of operating and maintaining your car. However, you can only deduct the portion of your car that pertains to business only. This is accomplished by pro-rating or allocating the total cost of operating and maintaining your car between deductible business use and nondeductible personal use. Business costs can be deducted by using either actual costs or the standard mileage rate.
  • Your equipment: You can convert personal assets into business assets by contributing them to your business. You can do so by giving them to your business either in exchange for a loan document or as contributed capital. If you received a loan document, the business will repay you principal (the market value of the assets) plus interest on a periodic (generally monthly) payment schedule (called amortizing a loan). If you considered the assets to be a contribution of capital, this contributed capital can be used to substantiate your ownership position in your business.
  • Your travel and entertainment: Travel expenses are expenses you incur for your business while away from home. You are traveling away from home if both the following conditions are met: (1) your duties require you to be away from the general area of your "tax home" substantially longer than an ordinary day's work and (2) you need to get sleep or rest to meet the demands of your work while away from home. Entertainment expenses include the expenses associated with any activity generally considered to provide entertainment, amusement or recreation.
  • Your retirement: The purpose behind having your own personal retirement plan is to create dollars to fund your retirement. Tax law allows you to do so in ways that are tax-advantaged. You may qualify to participate in certain retirement plans that are available to small-business owners, depending on certain factors, such as your business's form of organization, other retirement plans in which you already participate, the dollar amount of your earned income and whether you are functioning as an employer (owner) or an employee of your business.
  • Your family: As a small-business owner, you have an opportunity to hire your spouse, children and even your parents as a way of minimizing your family's tax burden. By shifting taxable business income to another family member, you can move dollars from higher tax rates to lower tax rates--creating real tax savings for you and your business.
  • Your self: As a small-business owner, you are able to take advantage of tax-free owner benefits. These benefits are paid out of pre-tax dollars. This means that there are more of these dollars to spend, since no tax has been paid on these dollars. This allows you and your family to enjoy benefits that are paid by your business and that are also tax-deductible to the business--the best of both worlds.

David Meier is the founder and COO of Business Development Coaching, which provides small-business owners with ongoing business coaching and the knowledge and support required to enable them to become truly successful entrepreneurs.

Note: The information in this column is provided by the author, not Entrepreneur.com. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.


David Meier is the founder and COO of Business Development Coaching, which provides small-business owners with ongoing business coaching and the knowledge and support required to enable them to become truly successful entrepreneurs.

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