9 Bookkeeping Tips to Maximize Your Tax Deductions

Every cent matters when filing taxes. Minimizing taxes is fundamental for business owners to decrease costs and maximize profits.

The most simple way of accomplishing this is to keep accurate and thorough files. With proper and well-managed records and files, all eligible deductions will be claimed.

Here are nine bookkeeping tips to maximize your tax deductions.

1. Track All Business Expenses, No Matter How Small

Every little detail is crucial when tracking expenses. Things that seem unimportant can still be claimed.

Ensure that any office supplies, travel-related expenses, meals, and entertainment activities are captured and converted into business expenses.

To make sure nothing is missed, set up a robust accounting software that captures all transactions or for more advanced monitoring, a comprehensive spreadsheet.

Key Tip:

Expenses will also be easier to manage with Quickbooks and Expensify which allow receipt scanning and categorization. Ideally, these techniques will save time come tax time.

Why It Matters:

In a business, one of the common mistakes that owners make is undermining the importance of minor costs as they feel that everything will add up and at the end of the year, it will not be helpful in any way.

These deductions evolve and can help save a good amount during tax periods. Make sure to track every expense that comes your way, including coffee meetings and supplies.

Tip for Accuracy:

After logging all of your expenses, you want to make sure you do a final review. This helps you catch any expenses that you may have missed, allowing you to claim them.

2. Separate Personal and Business Finances

Open a business bank account along with a credit card to avoid confusion and make accounting easier as well as bring down distractions related to bookkeeping.

Not only does this bolster your bookkeeping, but also makes your claims for tax deductions much more justifiable.

Why This Matters:

When you mix business and personal expenses, the lines between claimable and non-claimable expenses become blurred. Having separate accounts means you are less likely to draw queries from the IRS and maintain accurate records.

How to Maintain Separation:

• If you use EasyBooks, Xero, or QuickBooks, the categorization will be automatic when using your business credit card.
• This reduces the chance of incorrectly categorizing the expense as a business, making it easier to explain deductions at tax time.

Tip for Ease:

To cover your expenses, consider setting up automatic transfers from your business account. This makes accounting at the end of the month easier, as one does not forget to include personal expenses that are needed for tax purposes.

3. Keep Detailed Records of Receipts and Invoices

Just like any type of document, receipts, and invoices can be evidence of expenses and are important to properly manage. Save paper or digital copies of all receipts and organize them in such a manner that they can be easily accessed.

Many apps and software programs help users by allowing them to scan and store their receipts, thus saving space while maintaining the records in an orderly manner.

Best Practices for Storing Receipts:

• Store receipts by type such as office supplies, travel expenses, and client meetings.
• Store scanned copies of paper receipts digitally so that they can be put in folders and are not lost.
• Every receipt should have a note on the business purpose behind the purchase on it: this ensures that the expense was indeed business-related and is thus deductible.

Why Detailed Records Matter:

In the case of an audit, the IRS will ask for detailed records to verify your expenses. Receipts that are stored and categorized properly substantiate claims made with the tax authorities, which in turn lessens the chance of having issues with them later on.

Tip:

A range of apps that assist in receipt tracking, such as Shoeboxed or Expensify, come with a feature that allows scanning, categorizing, and storing of receipts on your mobile phone, consequently making your records always accessible.

4. Track Your Home Office Expenses

For people who work from home, part of your home expenses can be deducted. These include rent or mortgage interest, utilities, internet as well as maintenance costs.

Ensure that you keep a tab on the percentage of your home that is being occupied for business and apply it to expenses incurred. Make sure to keep detailed and clear records to back up your calculations concerning the square footage of your office space.

Breakdown of Deductible Home Office Expenses:

• Rent or mortgage interest
• Utilities (electricity, gas, water)
• Internet and phone bills
• Office supplies and furniture
• Home improvement expenses

Tips For Accuracy

To ensure your calculations are correct, you could measure the area used as an office and sketch the premises. This could then be combined with other household expenses.

To determine the business-use percentage, the IRS has specific rules that must be adhered to.

Alternative Deduction Method:

There is an option of taking the simplified home office deduction. This means that you can deduct five dollars for every square foot of your home that is only used for business purposes, to a maximum of 300 square feet.

While this approach has less paperwork to deal with, it runs the risk of being less accurate in terms of claiming the deduction than the regular method.

5. Document Mileage for Business Travel

If you conduct business through the use of a vehicle, mileage expenses can be subtracted. Log the odometer every time the car is used for business, such as driving to meet clients, going to appointments, or running business errands.

To keep an accurate accounting of mileage, use a mileage tracking program or a written log and record essential data like date, purpose of the journey, and total distance traveled.

Key Considerations:

• Make sure you only record business trips in the logbook. Personal travel is irrelevant to this matter.
• You have the option to select between a standard mileage rate or actual vehicle expenses like gas, insurance, and repairs. You can choose whichever option is better for your deductions.

Why It Is Important To Track Mileage Accurately:

The IRS requires that you maintain detailed records of your mileage and all business trips related to mileage. If you are unable to show a detailed log, you are likely to miss out on deductions in case of an audit.

Tip:

Without the cumbersome task of jotting down miles and trips yourself, MileIQ and Stride can automate the categorization of business and personal trips.

6. Deduct Business-Related Meals and Entertainment

If you’re eating with a client or conducting a business lunch, chances are you can write off 50% of the expense.

Maintain documentation of each meal in terms of date, place, participants, and business intention. If you want the IRS to allow your deduction, you need to back it up with strong proof.

Keep Track of:

• The names of individuals involved
• The business reason for the meal or entertainment
• Receipts with a description of the meal

Why Documentation Is Key:

The IRS has complex rules concerning deductions of interior meals and entertainment and inadequate documentation will put your deductions in disarray. To have evidence for your claims, you should keep proper records.

Tip:

Always jot down the reason for the meeting or meal on the receipt or store it digitally so that you won’t forget the details. This tip can be quite useful during tax season.

7. Maximize Your Depreciation Deductions

Equipment, vehicles, or real estate can depreciate over time, and this amount can be deducted from the taxable income. It’s essential to have all your business assets cataloged with their costs.

Bear in mind to work together with your accountant to ensure you are utilizing all of your allowable depreciation deductions as per IRS rules.

Types of Assets You Can Depreciate:

• Office computers, printers, and other devices.
• Vehicles involved in business.
• Business premises furniture and fixtures.
• Commercial real estate.

Why is depreciation important?

Depreciation is good as it helps spread the expense on an asset over some time, minimizing the taxable income. This will ultimately help increase the net income of the business. The more assets you have and track them accurately, the more you will void estate taxes.

Tip:

Speak up with your accountant about the Section 179 deduction. A deduction like this enables the immediate write-off of particular assets instead of depreciating value over several years. It may be especially advantageous when your business requires high expenses.

8. Stay On Top of Employee and Contractor Payments

Deductions are allowed for compensation paid to employees as well as independent contractors. Make sure that you are capturing all payroll expenses such as wages, salaries, and contractor payments accurately.

In addition to these, do remember to prepare all required documentation such as employee W2s and contractor 1099s before the due dates for accurate IRS compliance.

Key Actions to Take:

• Monitor employee payrolls, allowances, health insurance premiums, and retirement contributions.
• Maintain a record of payments made to independent contractors and issue 1099s for every contractor to whom you paid more than $600 during the year.

Why This Is Important:

The correct classification of employee or contractor payments helps to maximize available claims for payroll-related expenses. Furthermore, meeting the obligations of accurate tax filings minimizes the risk of incurring penalties and fines.

Tip:

Consider using payroll systems like Gusto or ADP to streamline employee payments and tax submissions which makes it much harder to lose out on important deductions.

9. Consider Prepaying Some Expenses

Some expenses like insurance premiums and business rent payments which are made towards the end of the year may give a deduction for the current tax year.

This can be a very useful approach if you are nearing your revenue limit and are looking to maximize your deductions before tax time.

Make sure this strategy does not clash with your financial goals by discussing it with a tax professional.

Common Expenses to Prepay:

• Business memberships and dues
• Subscriptions and software licenses
• Rent or Lease Payments
• Insurance Premiums

Why Prepayment Works:

Prepayment of expenses lowers the taxable income for the year. If you expect to be put in a higher tax bracket next year or your revenue varies, this can significantly help.

Tip:

Only prepay expenses that you are reasonably certain you will use. Do not forget to discuss your plan with a tax professional before making any large expenses.

How Easyfiling Can Help You Maximize Your Tax Deductions

Easyfiling’s bookkeeping services enable the automation of tax filing and the maintenance of tax records.

We can assist you in capturing and compiling expenses such as home office costs and mileage logs, along with other expenses you’re required to pay so you can maximize the filing benefits.

How Easyfiling Can Assist:

Cost Allocation Tracking: Our bookkeeping services help track business expenses to ensure the availability of all possible tax write-offs to enable cost allocation tracking.

Expense Allocation: Easyfiling partnered with preferred vendors to enable synchronization with the most sought accounting software to generate accurate reporting for income and expenses without lifting a finger.

Tax Write-Off Maximization: Our expert Easyfiling staff is an easy choice for all eligible decided tax deductions and write-off claims including depreciation, salaries, and food consumed for business.

Tax Regulation Compliance: With Easyfiling’s bookkeeping services experts, you can be sure that your records will be prepared correctly and up to standard for the IRS which reduces audit possibilities and ensures filing accuracy every time.

Your finances are in the hands of experts, giving you time to focus on business growth knowing your tax write-off strategies are maximized by choosing Easyfiling bookkeeping services, making every transaction count.