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5 Tax Strategies for Business Owners

1. Home Office Deduction

The key thing to note to qualify for this deduction is that your home office must be exclusively and regularly used for your business. This applies if you are running a business from home as an entrepreneur or you are working from home as an employee. All expenses incurred to run your business from home can be deducted. You may be able to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, homeowners’ insurance and some utilities. IRS provides two ways to calculate the deduction:
Actual Expenses using the % of the home used for the office
Simplified method: $5 per square foot with maximum of $1500
Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

2. Augusta Rule

You can rent your home to your business for up to 14 days a year for the purpose of monthly board meetings, hosting networking events, filming, etc. This expense can be written off as a qualified business deduction and the best part is, the rental income to you is personally tax free. There are a few things IRS require to qualify for this deduction including charging reasonable rent and substantiating the meeting with activities such as meeting minutes, agendas, attendees, picture, etc. Also, do not forget to issue a 1099 from the business to yourself for the rental payment.
Learn more here: https://www.irs.gov/taxtopics/tc415

3. Put your kids on payroll

You can pay your children for legitimate work that they do for the business which represents an expense for the business and tax-free income for your children. Your children could be paid for cleaning the office, data entry, social media posts, etc. It is important to pay them up to the standard deduction and the pay must be reasonable for the work they do.
Bonus: Combine this strategy with a retirement account to boost their investment at an early age.
Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/family-help

4. Put your spouse on payroll

You can pay your spouse for legitimate work they do for the business. The biggest benefit of doing this is that the expenses such as meals, business travel, mileage, cell phones, etc can be deducted to a greater extent. By doing this you can also increase retirement plan contributions which represents an additional expense to the business that can be written off.
Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business

5. Business Travel

The key to this deduction is to combine business and personal travel in such a way that the entire trip is tax deductible to the business. It is important to note that more than half of your days away must be for ordinary and necessary business. Example: you travel for a business conference Thursday and Friday, and you have a business meeting scheduled for Monday, your free weekend becomes business travel. Your entire trip may now be tax deductible to the business. Keep all receipts and categorize them, such as food, transportation, lodging and so on. Note that you must have actual receipts, not just credit card statements. The key is to keep personal time in the middle of the business trip.
Learn more here: https://www.irs.gov/taxtopics/tc511

This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.