Expenses are something no business can escape. However, as the saying goes: if you can’t beat them, join them. With the right knowledge, you can use them to reduce your tax liability and increase your savings. Tax planning has two purposes. The first is to keep you from having unpleasant surprises through unexpected expenses. The second is to keep your taxes to a legal minimum through tax avoidance strategies.
Common Business Expenses
Business expenses are the cost of running your business. Ultimately, your expenses decide if your top line will make its way to a bottom-line profit. Expenses could be fixed and variable. Although they vary by business, here are some common business ones:
- Rent
- Utilities
- Office equipment
- Payroll costs that include wages, benefits, and taxes
- Advertising costs
- Insurance
- Depreciation
- Taxes
- Lease payments
- Interest payments
- Licenses, permits, etc
Small Business Credits and Deductions
Depending on the type of expense, you might deduct the full or at least a partial amount of the following expenses:
- Self-employment tax
- Home office expenses, if part of your home is regularly used and exclusively for business.
- Business mileage
- Meals and entertainment, depending on the situation
- Gifts of nominal value to your employees
- Employee wages:
- Advertising expenses, if reasonable
- Rent: if only for business purposes
- Energy efficiency / Green Tax Credit
Meanwhile, political contributions, fines, penalties, lobbying expenses, and legal fees incurred to acquire business assets are not deductible. Also, you cannot claim personal expenses. However, if an expense has been used partly for business and partly for personal reasons, you can divide and deduct the business portion.
Tips for Cutting Business Costs
Besides deducting expenses, there is plenty you can do to cut your business costs.
Budgeting and tax planning are essential if you want to avoid overspending and falling into the red category. Budgeting is the best way to keep your business out of trouble as it will help you identify areas where you can save and improve.
Some common examples of cost-cutting efforts are:
- Buy in bulks and use discount coupons
- Implement an energy-saving strategy
Implementing an energy-saving strategy can result in significant savings. If you choose an office space with a lot of natural light, not only will a well-lit space save you energy from lighting, but you will also create a positive working environment for employees that will enhance their productivity. Invest in a programmable thermostat that will save you up to 15% in energy costs. If you add light sensors that will turn off the light once no one is there, you could eliminate any phantom energy waste. But if you prefer a more affordable alternative, light-blocking blinds that can save you even 25% on your energy costs. Moreover, there are simple steps that bring immediate results, such as making sure your devices such as computers are unplugged when not in use.
1. Browse for the Best Electricity Deal
With so many electric suppliers out there, it is easier than ever to compare rates online. Choosing a good deal can instantly take off several hundreds of dollars of your bill.
2. Use Free Perks (forms, software, etc.)
There is so much stuff online that is great, to begin with, but you can go all the way for free. For example, word-of-mouth and referrals are entirely free, yet they are the most powerful marketing tools. Tesla recently became the world’s most valuable automaker without spending a dime on advertising with this approach. You can even take a shot with DIY content marketing, but you will need time to develop it. The same applies to your PR that you could do with guerrilla marketing.
3. Liberate your business from a fixed expense by outsourcing non-essential functions. It will save you time and money.
4. If you’re a start-up or implement remote working to cut your rent expense and utilities, join a co-working space.
There are countless and painless ways to help you save money throughout your business operation. All you have to do is focus on your goal and get creative but also practical.
Takeaway Saving money is a skill like any other. It requires effort, and it takes time, but it is not that hard to master. Foremost, you must keep detailed records. If you’re ever in doubt about which expense is deductible, you can always ask your tax accountant. The second rule is that you should always leave extra space in your budget and your tax planning as unexpected expenses are bound to arise. Wishing you good health and profitability!