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Converting Personal Expenses to Business Expenses
As a Dallas small business owner, you are constantly shelling out money, and the lines between personal expenses and business expenses are often blurred. Finding personal expenses that convert to business expenses is the key to maximizing tax savings and tax write-offs.
What does it mean to convert personal expenses to business expenses?
The IRS allows small business owners to file deductions for any personal expenses that are incurred in the interest of generating income (Internal Revenue Code Section 62). These items can vary from business owner to business owner, but keeping close tabs on your expenses and how you are spending money will help you determine what those costs are for you.
Think “Above the Line”
Every tax return is determined based on a simple number: your Adjusted Gross Income. Your goal is to assess what personal expenses you have incurred on behalf of your business that can be applied to the Adjusted Gross Income, expenses above and beyond the Adjusted Gross Income line. Every dollar that can be linked to your business is more money back in your pocket.
What costs are covered?
There is no hard and fast rule for what is covered across the board for each small business owner. Examples of covered expenses could include home office expenses, technology costs, client entertainment, travel expenses, etc. Work closely with your Dallas accounting team to determine what is eligible for deduction.
Make Changes Now; Reap Tax Benefits
It is not too late to adjust the way you spend for 2016 in order to reap greater tax benefits next year. Consider each purchase and whether or not it can apply to your business as well. Keep close records of each and every purchase, take notes on travel and client entertainment, and record any information that could be useful for an expense you plan to file as a business deduction. These records will prove invaluable should an audit ever take place.
Need help maximizing tax savings for your small business? Outsource your accounting needs to NexGen Finance Solutions in Dallas, Texas. Bryan Polozola and his team are experts in finance and accounting, ensuring you will receive the care your company demands. Call us today at 214-629-0100 or email bryan@nexgenfinance.com.
5 Ways for Small Business Owners to Avoid Taxes
Tax season is drawing to a close, but it is never too early to begin thinking about next year’s tax filing. Proper tax planning is an ongoing effort, requiring diligence throughout the year to maximize tax benefits.
Now that tax season is ending, apply these tips to your small business to help reduce your tax burden in the coming year:
- Optimize Tax Elections
Consider company assets such as machinery, equipment, company vehicles, etc. and where they fit into your overall tax plan. For example, major purchases such as these can be written off in full up to a set dollar amount, but it may not be optimal to do so. If your company is just starting out, it may be wise to use depreciation now and save the deductions for the future.
- Track Your Carryovers
Carryovers are tax credits and deductions that cannot be fully used in the current year, but can be carried over and used for future years. Some of these carryovers may include general business credits, charitable contribution deductions, capital losses, and net operating losses.
- Know Your Adjusted Gross Income
Adjusted gross income (AGI), or modified adjusted gross income, is the benchmark that determines your tax breaks and tax liabilities. Lowering your AGI may provide additional tax incentives.
- Accountable Plans are a Must
With an IRS approved accountable plan, all employee reimbursements are company expenses, not employee income. If your small business in Dallas has employees that are reimbursed for travel, entertaining, personal expenses, etc., then using an IRS approved accountable plan is a must to avoid additional employment taxes.
- Take Tax Free Income from your Business
We are in no way advocating illegal activity, but rather using your business to your advantage. You may give yourself a loan through your business or set up a retirement plan, funneling income through tax-free channels. These fringe benefits are important ways to minimize your tax burden when tax time rolls around.
Interested in putting together a comprehensive tax plan for the year ahead? Give Bryan Polozola at NexGen Finance Solutions a call today at 214.629-010. Our team is expertly trained in all of your finance and accounting needs, with many years of experience in tax preparation, tax law, financial planning, and more.
Are you ready to meet YOUR new finance team?
