5 Legal Tax Deductions Small Business Can Maximize
Entrepreneurs can increase cash flow by using these tax incentives.
As an Entrepreneur, you can maximize five legal tax deductions that will ultimately increase your small business cash flow. For the average taxpayer, a tax return is something they focus on only once a year. In order to leverage the tax incentives provided by the government, an overall tax strategy needs to be a part of your everyday thought process.
To help you save thousands, if not millions, of dollars over the lifespan of your business, here are the five most common deductions overlooked by small businesses.
1. Home office deduction
The number one overlooked tax deduction by small business owners is the home office deduction. Many tax preparers discourage this deduction over concerns that it may raise a “red flag.” If you hear this objection from your accountant, it’s time to find another tax professional. Follow the rules, the IRS will be fine with your legal home office deduction.
2. Automobile deductions can increase with a home office.
Many do not realize that your automobile deductions can go up by having a home office. The reason is commutes aren’t deductible. However, if your first stop is your home office, all other car rides during the day can become deductible. Some people double their automobile deductions simply by having a home office.
3. Meals and entertainment with spouses.
If you go to out to eat with a spouse and discuss business (as many do), the meal should be deductible. Many make the mistake of not taking this deduction as a small business owner, when it is absolutely legal.
4. Travel expenses.
If 51 percent of each day on a trip is spent on legitimate business activities, it is considered deductible. You can combine business and pleasure when traveling by following the rules to make it a legal deduction.
5. Continuing education versus seminars.
Most seminars for the general public are not deductible. However, a seminar that increases your knowledge and improves your business may be considered continuing education and be deductible.
While a refund can seem like great news, especially if it isn't expected, it usually indicates a lack of a tax strategy. Monitor your taxes year-round, and know in advance whether you will owe or receive a refund. With the right planning, a refund can be received much earlier.
As a small business owner, the government wants you to take tax deductions and increase cash flow. The tax law is simply a series of incentives to fuel more money into the economy through job creation, investment, product development, charity donations and expenses. For a more complete guide on how to maximize your legal tax deductions, read my book Tax-Free Wealth.
Entrepreneur Leadership Network Contributor
Tom Wheelwright is a leading tax and wealth expert, CPA, and author of "Tax-Free Wealth." As CEO of WealthAbility®, Wheelwright helps entrepreneurs and investors build wealth through practical strategies that permanently reduce taxes.