Boss Lady

9 Top tax tips for the beginner taxpayer


If you are about to start paying tax for the first time, then you’ll need to get some advice. We’ve compiled some details below and these should help you get things in order and help you start on the right foot.

1: Keep a business journal

Being audited may seem scary, but it is not the end of the world.  However, if you are being audited and do not have the records to prove your deductions, then it can be an utter nightmare!  One of the simplest methods of avoiding this unpleasant scenario is by maintaining a daily log of all home business transactions.  Did you purchase paper for the office printer?  Write the transaction down and attach the receipt to the page in the journal or scan it in if the journal is digital.  The same goes for any phone calls, mileage and other expenses; as well as payments received by the company.

If you want to get a better grasp of what to add, then take a tax prep course. You should also make sure to invest in the right equipment and software to ensure you’re paying the exact right amount – no more and no less. There’s plenty of accounting software for freelancers out there that can lend you a helping hand!

The more detailed the business journal is, the easier it will be when facing an audit.  Compiling daily reports into a monthly tracking short can shorten the time it spends getting your taxes together; therefore, you will have the additional advantage of providing a snapshot of the company’s month-to-month expenditure.

2:  Writing off the workspace

Writing off a home office can be an attractive option if you have a line of work that is neatly confined to a specific room; however, it is also possible to write off part of a shared room!  In both of these situations, the space is calculated as a percentage of the overall apartment or house area.  The percentage is then applied all the related expenses, such as insurance, utilities, mortgage payments and others.  Do not claim any unrelated costs, such as the installation of an outdoor fountain in your back garden, as these transactions can make auditors uncomfortable.

Home work environments can break or make a career as an entrepreneur. If your business holds stock in foreign nations this can also be written off — see more at VAT Global To learn more about this topic, read ‘Creating A Home Business Work Space’. If you’re self employed, in addition to a home workspace, you can also write off costs to your car, from vehicle wear and tear to mileage. Depending on what you do with your car for work, it may even be affect your car insurance.

3:  Update the equipment

Software, computers, office furniture, and other types of equipment are all fully deductible within the year that the cost is made — you do not need to depreciate.  There is an upper limit and all expenses need to be majority-usage or used primarily, as well as being helpful or necessary for the company.  Within these guidelines, however, you should not have any problems keeping current.  Of course, a comfy sofa or widescreen television with entertainment center in the home office will be difficult to explain.

4:  Staying healthy and saving for retirement

If you work exclusively for the home business, you will be required to pay an employer’s share of Social Security and health insurance; however, you can deduct half of the social security amount with the total premiums for you and other staff members.  You can also provide retirement plans developed for self-employed entrepreneurs and write these contributions off against your personal income tax amount.

5:  Talking up a storm

When speaking with clients is a necessary aspect of the company, it may be worthwhile to purchase a dedicated business cell phone and second phone landline – both of which are fully deductible.  If you only speak with customers when required, you can still deduct the costs by detailing the times, dates and reason for calls, and then circling the items on the primary phone bill to deduct during tax season.

6:  Getting connected

Similar to the issue of the phone bill, it is possible to deduct a second of the internet cost if you utilize it for business.  While there is no set percentage for use, it can be difficult to write off in excess of 50% when other members of the family are using the internet for non-business reasons.  If you are opting to deduct internet usage, be reasonable and choose a defensible percentage that you can easily argue in an audit.

7:  Entertainment

It is possible to receive a tax deduction from entertaining clients, as long as the individuals is a client who is likely to pay for your services.  Business owners tend to abuse this write-off at many levels, and this abuse of deduction has scared many people away from making a claim; however, it is acceptable to take a client for meal and entertainment.  It is easier to defend a deduction of $200 for an evening with a client who has provided you with a great deal of business than a meal for a friend who has paid you very little for services rendered.

8:  Take trips, not vacations

Do you have to travel to expand your company’s reach?  If you do, it is imperative you save the receipts!  On business trips, all travel costs are fully deductible and the food expenses can be up to 50% deductible based on the total cost.  By keeping all of the receipts from the trips, you could make a worthwhile deduction from everything including dry cleaning and tips.

Local day-to-day mileage gained as visits to clients can also be written off as business travel expenses, so be prepared to pay attention to mileage on your daily ventures as you would to the longer trips.  For the majority of people, the mileage deduction is a more realistic deduction than the first-class tickets to California.  Remember, whenever you claim an expense, you need to be able to justify the transaction and show how the payment influenced the business.

9:  Employ the family

You can utilize members of your family as staff and claim back the salaries.  If you run a company that lends itself to having your children and spouse help out, then you should consider using these resources.  You’ll more than likely pay less than the market rates; however, you can continue to deduct insurance premiums for the family workers.  An additional bonus is that children below the age of seventeen do not incur Social Security tax, but they can continue to make contributions to the Roth IRA; therefore, you can teach the saving habits and work ethic in a single go.

This post has been updated with new information for 2020.

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