It’s time to take a good look at your New Year’s resolutions and how to make this year your best one yet. As a business owner or manager, it’s easy to resolve to increase efficiency and boost the bottom line. But, like most resolutions, if you don’t develop a plan for success, the resolution never comes to pass. A good way to save precious dollars is to take a look at your business tax situation. It’s probably too late to adjust your tax liability for 2020, but it makes sense to work on reducing it for 2021.
Uncle Sam gives various tax breaks to business owners and entrepreneurs. It just takes a little planning and plenty of good record-keeping to take advantage of them. Here are some ways to reduce your tax liability:
- Vehicles. If you use your vehicle for business, there are several tax deductions you may be able to claim. The 2021 mileage rate for business is 56 cents a mile. Keep track of your business miles, as they add up quickly. You may also be able to deduct the interest on the vehicle loan equivalent to the percentage of business use. For example, if you use the car for 80 percent business and 20 percent personal, 80 percent of the interest cost may be tax-deductible. There are certain limits, so check with your attorney.
- Capital expenditures, such as computers, software and machinery used in business are typically tax-deductible. These can also be divided between personal and business use with the business percentage being deductible.
- Professional services and fees like credit card fees, legal services, accounting and the cost of goods sold are usually deductible.
A planned tax strategy and solid records will help your business reduce the tax bill. Have your attorney review your tax returns to make sure you are on solid legal ground.