5 Things To Think About To Help You Save on Your 2020 Business and Personal Taxes
We are almost halfway through a very uncertain year. We hope that your business has been able to prosper in these trying times. With the year reaching it’s halfway point, we wanted to make sure you continue to think about your taxes year-round and how you can keep more money in your pocket.
Here are 5 things to think about throughout the year to help you lower your business’s tax burden in 2020.
- Is an expense “reasonable or ordinary”? Businesses are allowed to deduct the costs of carrying on the trade or business. To be deductible, the IRS requires that the business expenses be ordinary and necessary. By ordinary, they mean that the expense is common and accepted in an industry; and by necessary, it means that the expense is helpful and appropriate for the trade or business. Make sure that you are keeping track of ALL expenses that are reasonable or ordinary.
- You can deduct the cost of your home office… But there are a few things to think about as the year goes on to take advantage of this deduction. If you use part of your home regularly and exclusively to perform administrative or managerial activities for your business and your home office is a clearly designated area of your home for the business, you can claim the home office deduction for utilities, rent, mortgage interest, depreciation, and even cleaning fees based on the square footage of your home used for your business. Make sure you are using your home office regularly and that it is a clearly designated area.
- You can deduct your business travel. If you need to travel out of town for business, the cost of getting to and from your destination and any business-related expenses when you’re at your destination can be deductible. Meals are deductible when you’re away from your home in pursuit of your trade, and your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meal expenses must be reduced by 50% before being deducted, but lodging expenses are not reduced.
- Deduct your transportation costs – how to keep track. When you’re deducting transportation costs, you can’t deduct the commute between your home and place of business. You can deduct business-related trips throughout the day, such as traveling to get supplies or attending meetings offsite. You also have to choose between two methods: actual expense method or standard mileage method. The standard mileage rate for 2019 is 58 cents per mile. This figure is meant to reflect each of the following expenses: gasoline, lease payments, insurance, maintenance and repairs, vehicle registration, and depreciation. On the other hand, the actual cost method entails deducting each business-related car expense by itself. This includes gasoline, insurance, maintenance, depreciation, and lease payments. Make sure to keep track of your mileage or all of your car expenses.
- Deduct your health insurance premiums! You are able to deduct the costs of your personal health insurance premiums as a self-employed person, as long as you meet certain criteria:
- Your business is claiming a profit. If your business claims a loss for the tax year, you can’t claim this deduction.
- You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in one and chose not to, you cannot claim this deduction. You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.
Lowering your tax burden is a year-round activity, not just in March. Make sure you are thinking about all the ways you can keep more money in your pocket by utilizing the tax code to your advantage. Remember, good tax planning is only as good as your bookkeeping.
Schedule a free consultation to learn how you can save on your 2020 Business Taxes