Double your Tax Refund by Preparing

I mentioned earlier that I would write a post focusing on tax tips for self employed people. Actually, some of these tips could apply to everyone.

Awesome ROI

Let me start off with telling you why it’s so important to be prepared to do your taxes when you’re self-employed.  A study by the Foundation Communities in Austin Texas & CFED saw that there was a quite clear positive correlation between self—employed taxpayers who were prepared and the amount of their refund.  As you can see by the chart next to me, the extremely prepared received up to $1158 more in tax refunds than those not prepared.  Check out the Center for Economic Development’s blog post on it.

So let's get you prepared to get that big refund!

Really the main take-away from the study is to come to your tax appointment having done you due diligence.  Knowing what to track and what to prepare will ensure that big check.

First thing you can do is track your mileage.  Even though the miles you use to commute are not deducted, the miles you use to go from one work to the next do! Depending on how your business is set up that could be a lot of miles and having an accurate count will benefit you.  I know I would have a hard time estimating how many miles to deduct for a whole year on the spot...

Keep track of ALL business expenses.  Even though you won't be able to deduct everything, it will be better to have all the info available than (again) try to remember how much you spent on replacing that office chair last year....Imagine you forgot about buying it, and you don't deduct it! How horrible!

Tricky deductions

Most deductions are pretty straight forward. Cleaning supplies, mileage, machinery, etc. As the IRS says, business expenses need "to be deductible, a business expense must be both ordinary and necessary (D. Stoica's Blog).  Some are a little less straightforward.  For example, deductions for use of your home as an office are only applicable if you have a dedicated space in your home that is labeled the office, and that is NOT used for personal use.  If you meet these conditions, go fot it!  Travel and meals are also great to deduct...if they meet the requirements.  Travel expenses such as hotel, flight, car, and even dry cleaning is 100% tax deductible, but meals are only 50% tax deductible - while traveling.  Meal expenses while at home have a different set of rules. You can only deduct meals (while not traveling) when:

a. "Entertainment took place in a clear business setting, or 

b. Main purpose of entertainment was the active conduct of business, and you did engage in business with the person during the entertainment period, and you had more than a general expectation of getting income or some other specific business benefit." (IRS)

For a list of common deductions check this blog by Bankrate.com.