In both our Start-Up School and tax season work with self-employed business owners, I hear this question quite often. The source of the question isn’t a devious place, like “Hahahahaha, can I deduct my pet insurance and screw over the government!”, but from a place of frustration that the business in question doesn’t have any more obvious tax deductions.
I think the issue stems from how start-ups come into existence these days. Gone are the days of signing three year leases on office space, getting into a 5 year contract with AT&T for an office phone, and hiring a part-time admin out of the gate. Business owners these days are working from makeshift home offices, garages, or co-working spaces where overhead comes cheap. Office phones are being taken over by cell phones and VoIP solutions. Some print business cards using online services and set up their own websites. The barriers to entry are getting smaller and smaller, which is fantastic….until we get to the tax return.
I see so many Schedule C businesses running at 70% net profit margins, getting socked with self-employment taxes and income taxes, and wondering how to lower them. Here is the advice we offer:
This is why we love tax planning with our business clients. We aren’t magicians, but we know the questions to ask. We love reducing our clients’ taxes, because they can then use those funds to do wonderful work for their clients. And we never propose spending money just for the sake of a tax deduction. That’s not a smart way for you to use your precious resources.
So, if you’re a small business owner, let’s make sure you’re not giving your hard-earned money to the IRS unnecessarily. After all, they take enough of it already, don’t they?
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