Taxes for The Small Business Owner


Many small businesses suffer from the tax blues. It is difficult to make the transition from doing personal taxes to doing taxes for a small business. There are many new categories to learn and deductions that you probably didn't know you could take. Even though doing your taxes is never an easy task, you should learn as much as you can about taxes for your small business. It is not a good idea to try to fool the IRS. This article will focus on tax deductions for the small business or home office, and give tips and tricks for filing your taxes.

Take Every Legal Deduction You Can

The best way to learn to do your own small business taxes is to educate yourself. The Internet is full of sites that offer solutions to questions from small business owners.

The Home Office

A lot of people worry about using this deduction. It is necessary to use it if you are doing any kind of business that generates income from your home. The key is that the home office must be exactly that. It can't just be a computer in your den or family room, or even in a guest bedroom. It must be a space set up for nothing other than running your business.

Office supplies

Always use this deduction. The key is keeping good records and hanging on to all of your receipts. These expenditures will offset your taxable business income.

Office Furniture

Be sure to use this deduction. It has become very attractive to the small business owner in recent years. Use the Section 179 deduction, which allows you to fully deduct expenses on tangible property in the year it is purchased. In previous years you were only allowed to use depreciation for office furniture.

Deduct Mileage

Be sure to deduct mileage for your business. The government likes to see documentation, so keep a mileage book in your vehicle. For the tax year 2007 the rate goes to 48.5 cents a mile. With the current cost of gasoline, you are foolish not to take this deduction. Make a point to take care of company business when you have to go out for other reasons, combining business with personal trips to save money.

Travel and Entertainment Expenses

When you travel for business, the cost of lodging is 100% deductible. Not so with eating out. The government allows deductions of 50% when eating out while traveling on business. Stay at the Hilton, eat at McDonald's.

Social Security

There is good news and bad news. The bad news is you must pay 100% of your Social Security taxes each year. When you work for an employer, your employer paid half, and you paid half. As a small business owner, you pay it all. The good news is you can declare 50% on your 1040.

Filing Taxes for The Small Business

Filing taxes for a small business is as straightforward as filing personal income taxes. The difference lies in the amount of deductions, the extra forms needed, and dealing with state business taxes.

The IRS has online help for the small business owner wishing to file their own taxes. The IRS website offers tax help for any small business owner, from a small home business to corporations with 100 partners. The website will walk you through every aspect of tax filing. A small business has to file a lot of different tax forms; here are some of the more common ones:

  • Form 1040 Schedule C: Covers profit and loss from businesses.
  • Form 1040, Schedule F: This form is used if you run a farming operation.
  • Form 1065: Covers US tax return for partnership income.
  • Form 1120: Covers US corporation income tax returns.
  • Form 1120S: Used for income tax preparation for an S corporation.
  • Form 4562: Used for amortization and depreciation.
  • Form 8829: Used for expenses for business use of your home.

The IRS loves forms and documentation. Take the time to know what deductions you qualify for, the proper forms to use, and where you can file online, and tax preparation this year for your small business will be much easier.