When it comes to tax deduction strategies, we all look for The Magic Pill.
It’s tempting to wonder whether there’s a secret list of unknown and unused tax deductions that the government is hiding from the average small business owner.
I’m sorry to disappoint you, but there is no such list. The tax code is readily available to anyone who can read. Of course, whether our tax rules are also easily understandable is another matter. But for the most part, it is possible for someone with a high school education to get a basic grasp of what deductions are there for the writing off.
I think what most people are asking when they inquire about so-called “overlooked” tax deductions is this: “What deductions have I not heard about yet?” People are busy. And small business owners are trying to run a business, which is usually a more than full-time occupation. Who has time to wade through thousands of pages of tax jargon to learn what I don’t have time to learn?
With that in mind, here are two tax deductions that you may have missed over the years, not because you can’t read or even understand what you read, but just because you’ve been busy running your business and living your life.
1. Form a corporation.
If you are a sole proprietorship or a partnership, you should definitely give this serious consideration. This is what tax pros call “Choice of Entity”. Chances are you never really made a choice of entity. You just started your business and if you’re doing it by yourself, you’re a sole proprietor and if you’re doing it with a partner, you’re a partnership. Either of these entities may be the best one for your particular situation, but there is also a good chance that you’re overpaying your taxes by sticking with this default entity. Choice of entity just may be the most costly tax decision that you never really made.
2. Deduct all your medical expenses.
There are a variety of ways to do this, even if your business is a sole proprietorship or a partnership. Do yourself a favor and check out the Medical Reimbursement Plan, the Health Savings Account, and the health insurance premium deduction. Many small biz owners are clueless about these wonderful tax strategies. Just one of them could save you a bundle. Utilizing two or even all three of them could put thousands in your pocket.
There are hundreds of potential tax deductions. But since not all deductions are created equal, these two areas can provide a significant return on the time you invest to check them out.