As business owners prepare for tax season, many sole proprietorships begin to consider the tax benefits of incorporating or forming an LLC. Similarly, business that are incorporated are looking to maximize their tax savings – especially during this tough economy.
The IRS states that any “ordinary and necessary” business expenses can be subtracted from your business income prior to being to taxed. Here’s the interesting part: Your business does not even have to make a profit for your expenses to be deductible. You must only establish a “profit motive.” Under the Internal Revenue Code, a “profit motive” is presumed if you earn any net income in any three out of five business years. Furthermore, the general rule is that as long as the expense is made for business (not personal) purposes, you can deduct it from your business income.
Business tax deductions you should consider include the following:
- Auto expenses
- Expenses of going into business
- Education expenses related to business or trade
- Legal & professional fees
- Business entertaining & travel
- New equipment & software
To ensure that you don’t miss large deductions that could save you a great deal of money, it is wise to consult with an income tax professional.
So make what many consider to be a difficult time of year into a painless …here’s to tax season!
Tax Time Tips
As tax time is right around the corner, here are some things to remember:
- Be sure to gather all the necessary documents/info to file both personal and business taxes
- File any required quarterly taxes
- Decide whether or not to elect S-Corporation status for 2010 (the deadline is March 15th)
- File all required annual reports with the Secretary of State.
