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How To Run Your Business and Minimize Taxes

Posted by Jeff Hardy in Accounting                          Words in this Post: 735

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There are two types of tax reduction categories: business expenses and business tax deductions. A business expense is money you spend running your business, including office rent, postage, purchasing inventory, putting gas in the company car, and paying a salary to an employee. A deduction is an expense you are allowed to take on your tax return after you have calculated your income minus expenses.

Some popular deductions include charitable deductions and deductions for educational expense (attending a seminar or buying this book, for example).

The first step in order to minimize taxes is to keep good records of all expenses and deductions. If you are spending money on business-related expenses out of your own pocket and you don’t prepare expense reports to get the money back from your company, you’re losing money. Although it is sometimes necessary to spend your own money, I find the easiest thing to do is to run everything possible through the company’s books. The easiest way to do this is with QuickBooks.

We have our corporate bank account set up in QuickBooks so we can write checks from our corporate account right on the computer. We also have a commercial checkbook where we can write checks. We carry this to tradeshows and merchandise marts when we are shopping for inventory. After we’re back in the office we just enter them into QuickBooks. We also have a debit card tied to the corporate bank account. We can use that when paying for business meals, renting a car while traveling on business, buying gas for the company car, and so on.

The key to minimizing income taxes is to make sure that every single expense related to your business is accounted for in your profit and loss statement at the end of the year. Losing receipts and being sloppy with your bookkeeping can literally cost you hundreds, if not thousands, of dollars a year. Additionally, if you ever are audited, having those records on QuickBooks will save you hours of work preparing your records for the auditor.

The other key to saving taxes is to maximize the use of your business funds. If you want a new digital camera, let the business buy it (as long as it will be used primarily for business-related purposes). There is nothing that says you can’t borrow the camera to take some photos of the kids on Christmas morning.
Don’t forget to account for sales tax on items you buy at retail to resell. I usually buy our goods from wholesale suppliers where I do not pay sales tax. But occasionally I will purchase a closeout lot of something from a retail store or hit a big sale at one of the outlet malls; and when we do, we pay sales tax. Almost every state has a procedure where you can recover this tax if you bought the item for resale. It is usually no more than listing the taxes on your quarterly tax form and asking for a credit.

If you have children, this is a great way to teach them something about business, having responsibilities, and getting paid for working. At the same time, you get to deduct what you pay them as a business expense. This is also a great strategy that could minimize the tax liability.

If your children are very young (8 to 12) you might give them simple tasks such as cleaning your office, washing the company car, counting your inventory, and so on. As they get older you can teach them to package your shipments and even use the computer, learn to type or if your business requires, they could help you do your purchases as well.

Another way to minimize taxes is to combine business travel with vacation. The IRS has some very strict rules about doing this, but they are easy to follow and can really reduce the cost of a vacation. For example, my wife and I went to Costa Rica a few years ago. While I was there I did some product research and we purchased about $5,000 worth of inventory to sell in my store. I could not write off my wife’s expense, but I was able to write off a portion of my travel expenses against the business. I think that vacation cost us about $2,500 total and I was legitimately able to write off about $1,100 against the business.

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Author: Jeff Hardy

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Tags: how to minimize taxes, minimize income taxes, tax deductions