I hope these tips will help you keep you guys alert out there and make sure you take full advantage of these when you are looking into filing your taxes. Now I want to caveat this by saying that I specially formulated these tips to be those that you would still have time to implement now that we are in 2021, as the best tax planning actually happens during the year, so in this case 2020.!
401K And Personal Income
So the first tip I want to share with you to help reduce your taxable income, is make sure you take advantage of the various retirement plans available to you as many of these will actually help reduce the amount of taxes you have to pay this year.
One of the best one and no one is talking about is the sole 401K. This is for business owners that have no employees other than your spouse and is quite amazing because you can make contribution as both the employer and the employee that means you can contribute get this…up to 56,000 a year!
Yes that means you can essentially shield 56K of revenue this year from taxes if you use this. There are other plans just like this if you do have employees in your company and even ways where you can offer your employees a similar plan for them to put money into their retirement plan, so it definitely makes you look like an incredible boss in the process.
The 2nd tip we would like to share is make sure you take advantage of the mileage deduction for all the business travels that you have done in 2020. Most things would qualify for this rather it is taking a trip to the post office, meeting with clients, errands to pick up supplies or even going to a business conference or mastermind would all count towards this. So for every mileage you traveled you get to take 57.5 cent as a tax deduction so it can really add up if you did a lot of travelling in 2020.
Just make sure to create a log of all the dates, destination, and the reason for travel. There is of course another way to take this type of deduction called the actual method which lets you calculate the actual cost of using your vehicle, but given that this video is shared with you easy tax deductions that you can take advantage of, so we won’t go too much into the other method. But feel free to let us know if you are interested in learning about that, we can definitely share some tips on that too.
Home Office Deductions
So the last tip we have for you is the opposite of the last tip. Which is realizing that due to COVID-19, many of you may have cancelled all your big or small travel trips last year and may have even downsize your office and decide to work from home, well this tip is for you! So the question we get our agency a lot this past year is I am working from home, what kind of deductions can I take?
The good news is we want to tell you if there is a home office deduction that is available to all business owners. To qualify for it you must meet two requirements 1. Regular and exclusive use, meaning whatever space it has to be for business use only and it must be the principal place of your business. After you meet those two requirements there are two ways to take this deduction just like with mileage. There is the simple way which is you’re allowed to take $5 dollar per square foot for up to 300 squares of your house.
And the Actual expense deduction which is as you guess it you can deduct the actual % of business use that your business take up and take a portion of all of these categories, such as utilities, business insurance, and rental insurance premiums. But ..this is definitely worth looking into especially if you know you are taking up more than 300 square foot of your house for your business and you can prove that you are using a large % of your home for business purposes.
So make sure you get an accountant that will check both ways for you esp if you have a large office setting as there are some big deduction waiting for you to take if you make sure you have someone that cares for the well being of your financial future.