How Owning Your Own Business Can Save You Taxes

Each year millions of people start their own home business. Unfortunately, many don’t take advantage of the tax benefits of being a home business owner. Here’s how owning your own business can save you taxes.

Home business and small business owners often don’t realize the tax saving available to them. If you can take a personal expense and learn how to use it as a business expense, you may reduce your income tax liability.

To learn more about how owning a business can benefit you, speak with a professional certified public accountant or financial advisor to learn more. They understand the tax laws far better and can give you more specific advice. However, these are some ways you can benefit as a business owner.

To satisfy the IRS, you must prove a “profit motive” or your desire to make money and earn a profit from what you’re doing. Your business doesn’t necessarily have to be profitable to be able to use your business as a means to save on taxes. You do have to have some expertise in the field you’ve chosen, but you could also use a hobby as a business if you could feasibly make a profit from it.

Keep track of any income, business expenses, and mileage that may be associated with your business as receipts, a check register, or a journal that is kept up-to-date. Maintaining good records will prove your claims should you ever be audited. What are some of the things you’ll need to keep records of?

Expenses must meet one of the following qualifications in order to be allowed as a business expense:

1. It must be an ordinary and necessary, or “reasonable and customary” part of doing your business.
2. It must have been paid during the taxable year you are claiming it.
3. It must be connected with conducting your business.

Depending upon your business, you may be able to use these items as deductions: Computers, printers, monitors, and any related software. You may also be able to deduct a portion of your household utilities including your telephone bill, internet, heating, and water.

If you do your business out of your home, you may also be able to include a portion of your mortgage for the space your home business takes up. Travel expenses may also be tax deductible if they are required for your business; again make sure you keep your receipts.

Conclusion: A tax preparer, accountant, or financial advisor will be able to answer specific questions you may have regarding how owning your own business can save you taxes. They will have a complete list of deductions you can take and will tell you if you’re taking some deductions you shouldn’t.