Save Thousands in 2021 — With these Tax Strategies

Here we are. We have made it, 2021. It should be a great year. With everyone working at home and starting part time businesses, it is a great time to learn some basic tax strategies that will save you thousands on your taxes. Whether you are a full time business owner or a w2 employee with a part time business, these tips can help you.

And remember, you do not need an LLC in order to take business deductions. As long as you are working on your business with the intent of making a profit and you are doing so consistently, the IRS will consider your activities a business and allow your business expenses.

1. Business Checking Account — Be sure to set up a separate checking and/or credit card for your business expenses. This account can just be in your name, but should be a different account than what you use for personal expenses. Use these accounts for anything you think may be a deduction based on our conversation and the information that has been provided. This will allow your accountant to do your books more efficiently and for less.
2. Medical Insurance — Your medical insurance can only be taken as a deduction if you have a positive net profit for your business (net profit is revenue minus all of your business expenses). If that looks unlikely for your business this year and you are married or have children working in your business you can still save big with a taxed advantaged HSA account. Please feel free to contact us for more details. Contact Us
3. Business Use of Home — Your business use of home can only be taken as a deduction if you have a positive net profit for your business. If it looks unlikely you will have a positive net income from your business this year we recommend you use the Augusta Strategy. Simply hold necessary business meetings at your home and rent out the space as your business from yourself. Be sure to rent out for the price it would cost to rent such a space and hold such a meeting. Call around to different places in the area and have them email you a quote. Please let us know if you use this strategy by the end of the tax year, so we can make sure all the supporting documentation is in place when you file your taxes. Augusta Strategy Details
4. Preplanning Trips and Engagements — For business trips and engagements it is best to plan and set up meetings and actions related to business on the business trips ahead of time. Take records of these meetings and planned business actions before leaving on the trip.

Here is an example of not good and good business deductions on a trip:

• Not Good — Going on a trip and handing out business cards at random places along the trip and trying to write off the trip.
• Ok — Planning ahead of time to go to a specific event and hand out business cards.
• Best — Planning a specific meeting ahead of the trip and documenting this meeting ahead of time. Contact a person or business in the area you are traveling that will help your business.

5. Supporting Information and Documentations — In general the more supporting information and documents you have the better. For all expenses it is best to keep a record of the business purpose of the expense. It is best to keep receipts. We know that not everyone keeps up with these activities and not doing them does not exclude the expense. In general the more supporting information and documents you have the better.

6. Hire Your Kids — You can hire your kids for your business. You must pay them a reasonable rate that you would pay someone else to do the job. Keep track of their tasks and hours. If they are under 18 they will pay no taxes on the first $12,400 you pay them. This should generally be done as a w2 employee. This will allow you to provide them with more fringe benefits, but takes more effort to set up and needs to be run through payroll, which you will need our help to set up. Let us know if you would like help adding your kids to payroll.

7. Common Deductions — Here are some common deductions that we typically see our clients using:

• Automotive — If you buy an automobile this year for business use, please let us know.
• Meals — You can deduct business meals. Please plan the business purpose and name of guests ahead of time and keep a record of this.
• Miles — You can write off the miles that you drive for your business. If you are driving for personal use, but stop to do business along the way, that can be considered a business trip. Use MileIQ to track your miles. You can track your miles for 90 days and then multiply by 4 to get your business mile use for the year, but you must be driving about the same every quarter. This is the most common audit, so it is important to keep records of this.
• Cell Phone and Internet
• Travel — Set up your business plans before your trip. Keep records of meetings and business actions planned ahead of time.
• Hire Your Kids
• Office Supplies
• Continuing Education / Training / Personal Development — Education needs to be related to your business. Can not be for a licence, like a plumbers licence. Personal Development nearly always counts as long as you believe the training will lead to income now or in the future. Business coaches and consultants also count.
• Tax Preparation / Professional Services — Your tax preparation and professional services like legal for your business are deductible.

And that is it. If you are interested in getting some help navigating your small business or part time business, please feel free to contact us on our website HBB Accounting

Written By: Ryan Moriarty, Tax Strategist, HBB Accounting