If you’re filing your taxes as a solo home-business owner, the process can seem like a complicated mess, especially if you haven’t stayed on top of your bookkeeping and accounting tasks throughout the year. Fortunately, there are some things every small business owner can do to make things as smooth as possible at tax time.
Here is a quick guide to making the financial reporting process easier at tax time.
Know What Deductions You Can Claim
Running a small business from a home office can mean deducting some of your housing costs, especially if you have set aside a dedicated area to work from. For example, if you have your home office set up in a spare room or converted attic space, you could be able to claim $5 per square foot of office space up to a maximum of 300 square feet.
Likewise, you might be able to deduct some of your utility costs. After all, you’re paying for heating or cooling within your office space, so the tax office may allow you to deduct a percentage of the costs for the comparable office space you have your home office based in. In some cases, you might also be able to deduct a portion of your internet and phone bills.
Keep All Your Invoices
Always keep copies of any invoices you receive for your home business. Whenever a new invoice arrives, take a moment out of your busy day to enter it into your accounting software or reporting program before filing it away immediately. If you’re keen to really cover yourself in the event of an audit, take digital copies of each invoice as well before filing the physical copy away.
Open a Separate Business Account
It’s common for plenty of home-business owners to combine their personal banking with their business income and expenditure in the same checking account. Unfortunately, separating out the two at tax time can be a nightmare. If you’re keen to streamline your business reporting processes, open a new business banking account and keep your personal finances completely separated.
Consider a Business Credit Card
Using a business credit card offers a streamlined way to keep track of your spending and provides you with a handy statement to verify your purchases and expenditure. Choose a credit card with low annual fees and be sure to repay your outstanding balances at the end of each month before the due date shown on the statement.
If you can repay your balance in full at the end of the month, you might be able to take advantage of the card’s interest-free period and help shore up your business cash flow at the same time. Essentially, your home business can take advantage of using the lender’s credit for up to 40 days without paying any interest before the payment is due.
Just don’t fall into the trap of carrying a balance over from month to month, as the high interest charged could impact your cash flow.
Track Your Mileage
Any driving you do for business reasons, aside from commuting, could add to your total deductions. There are plenty of apps available that help you track the mileage driven for business-related trips. Download a mileage tracking app or log-book entry app and track every mile you cover. If you’re ever audited, you’ll have records to verify where and when you traveled.
Before you complete your accounting tasks and submit your tax return, take the time to discuss whether you’ve overlooked any potential deductions with a qualified