Your first year in business can be a tricky one! Before we jump into the deductions that you need to make sure you take, let’s look at a list of the business, tax and legal decisions and actions you need to take:
- How will you start your bookkeeping and record-keeping from day one?
- What is the best business structure for your first business?
- How can you avoid the 3 biggest mistakes with payroll?
- What state tax filings do you need to make? (For that matter, what are all the states that you need to make them in.)
- How can you avoid the 8 biggest mistakes with your first tax return?
Wouldn’t you love to have a checklist for that first year? We’ve got one in “Smart Business Stupid Business” that walks you through these critical first year deductions.
How about “20 Deductions to Put More Money In Your Pocket”? Let’s cover a few of these today:
- Home Office Deduction. Don’t be afraid to take a deduction for legitimate home office deductions. There are five steps to legally and safely take the deduction.
- (1)Measure the square footage (SF) of your home office and your total home. Calculate the business use percentage by dividing home office SF by your total home SF.
(2)Take a picture of the home office.
(3)Add up indirect costs. (More info on this in “Smart Business Stupid Business”)
(4)Add up all direct expenses such as remodeling your space to turn it into a business use.
(5)Give all the details to your CPA at the end of the year.
- Donated Items. When you first start your business, particularly if you are bootstrapping, chances are you contributed a lot of things to your business. This probably included things like a desk, chair, cell phone, printer, computer, decorations, file cabinet and more. Don’t forget to take a deduction for these items. Here are four steps to follow:
- (1)List all personal items you contributed to your business.
(2)Check the fair market value (FMV) for each contributed item.
(3)Make a note in your files of how you calculated the FMV. Better yet, print out a copy from a third party source (eBay or Craig’s List) that shows a representative value.
(4)Write yourself a check from the business for the total value.
These are the business owner’s best friend!