Tax Tips to Remember This Tax Season

We are not tax professionals and we strongly recommend that you double check with a tax professional as to whether you qualify for any of these tips & ideas.

1. The “Hobby Loss Rule” – You can deduct hobby expenses up to the amount of your hobby income. Expenses that are more than the income you made from your hobby are nondeductible personal losses.
   If you operate a business, your business losses can offset other income on your return. To be considered a business, an activity must have a profit motive¹.
2. Start prepping now – Unless you are an absolute fanatic about organization, you should start getting your paperwork together now and have it organized so that you or your tax professional can find the needed info quickly.
3. Plan for next year – For example, if your business is on the cash basis for accounting purposes, you can delay billing for work done late in the year so that payment will be received in the following year. This effectively lowers your business’s tax liability for the current year, since you can move those profits into the next tax year and defer tax on the cash you would be collecting for one year. Of course, tax planning should be sensitive to business realities; don’t defer income in this manner if you are having a cash flow shortfall or have concerns about the ability of a customer to pay. Be sure to speak with your accountant about this.
4. Hire family members, even your kids – One of the best ways to reduce taxes for your small business is by hiring a family member. The Internal Revenue Service (IRS) allows for a variety of options, all with the potential benefit of sheltering income from taxes. You can even hire your children, at as young as seven years old.² Be sure to speak with your accountant about this.
5. Don’t forget to deduct travel expenses – If you travel a lot, or even a little as it all adds up, for both business and pleasure, you may be able to reduce your business taxes. Business travel is fully deductible, though personal travel does not enjoy the same benefit. There are several ways to manage travel to save on business taxes. You can combine personal travel with a justifiable business purpose. You can also use the frequent flier miles you earn for personal travel.
6. Watch for large section 179 deductions³ – Section 179 of the IRS code allows businesses to deduct the full purchase price of equipment and/or software in the year of acquisition up to $500,000.⁴
7. File on time – While this sounds obvious, many people wait too long to file and then end up paying late fees to the IRS. Every cent you keep from the IRS is a direct benefit to your bottom line.
8. Donate un-needed equipment rather than paying to store it – If you have unsold or unused inventory, donate it and get the tax deductions instead of spending cash to store it. Company donations of money, supplies, and property are all considered deductible expenses. However, be aware that donations of goods greater than $500 have stricter reporting rules. Be sure to speak with your accountant about this.

Notes:

1. More detailed info can be found at H&R Block
2. More detailed info can be found on the IRS website
3. More detailed info can be found on Section 179.org
4. More detailed info can be found on the IRS website

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