5 Effective Tax Deduction Strategies for Startups

As if starting up a new business isn’t stressful enough, you also have to figure out how to file your corporate taxes. And you’ll quickly discover that unearthing every possible deduction is an essential part of ensuring that you don’t pay the IRS a cent more than you need to. If you want your business to succeed you can’t throw money away. So here are just a few effective tax deduction strategies that should help you to come out on top.

  1. Save every receipt! This is where many new business owners fall short. But you absolutely have to keep receipts for everything if you want to deduct every applicable business expense. Whether you use a shoebox or you download an app like Expensify to save receipts digitally, it’s imperative that you keep records of every purchase.

  2. Amortize. Many professionals starting their own business don’t understand how writing off the costs of startup works. There are many expenses associated with getting the doors open, and your best bet when it comes to see a return on these expenses is to amortize them, or write them off over the course of several years. You can equate it to the way you write off mortgage interest for a home loan, just for example. However, in order to claim this deduction you must include the appropriate paperwork with your initial business tax return so that the IRS is aware of the fact that you plan to amortize your startup expenses. Otherwise you might not be able to claim them until you sell or close your business.

  3. Unpaid debt. It’s important to keep track of money that isn’t coming in since you can write it off as a “bad” debt. Of course, you first have to declare it in your earnings, and this is something you might not want to do until you have the cash in hand. After all, paying taxes on money that is anticipated rather than earned can be an unnecessary expense. Generally, startups prefer to declare only the money that they’ve actually been paid. But if you decide you want to declare monies owed for work that has been completed, you can later write off any debts that you feel are not going to be paid for one reason or another.

  4. Automobile expenses. This write-off is rather contentious for a couple of reasons. First of all, you can only deduct costs associated with business usage, which means if you’re using a personal vehicle rather than one that is solely for your business, you have to keep track of business-specific use. In addition, there are two ways to deduct such expenses. You can take the path of least resistance with the standard mileage deduction, whereby you track the miles you travel for business purposes and get a deduction at a set, per-mile rate. But you can also use the actual expense method whereby you track every expense, including fuel, parking, and maintenance, in addition to loan payments, insurance, and registration costs. You may even be able to include some amount of depreciation if you have a dedicated work vehicle. This is a lot of work, which is why most people don’t bother. But you generally stand to secure a better write-off with the actual expense method.

  5. Get professional help. If you’re something of a novice when it comes to tax planning, it’s not a bad idea to hit up H&R Block, find a local CPA, or contract with a firm like Bowman & Company for tax preparation services. You can certainly file online by yourself and save a little dough up front, but when it comes to getting every possible deduction and avoiding red flags that could lead to an audit, a qualified tax prep specialist is worth every penny. And if they do a good enough job, you’ll earn back more than you spend for their services.