Tax deductions… write-offs… “Ummm, wait, doesn’t my accountant deal with that?”
Today I want to talk about why it matters that YOU know what you can write-off for your business.
Because, really, it’s not enough to rely on your bookkeeper, accountant or spouse “to know” what your business can write-off. The reality is, that’s a lot to place on them… and, there’s no way they know your business like you do.
Simply put: you will be better off financially if you know what you can write-off.
Now, to make sure we’re on the same page, when I say “write-off,” you can also exchange it with the phrase “tax deductions.” Basically write-offs and tax deductions are expenses you’ve incurred for your business that are a part of a mathematical equation used most notably for taxes (but also for financial reports such as a Profit & Loss or Income and Expense report). Essentially, you take the total income you’ve brought in and subtract your tax deductions, and the remaining amount is considered your business’ profit (and what you pay taxes on).
Now… you might be wondering why I think you, the creative and business owner, personally need to have some understanding of what you can write-off?
Well, firstly, any money you write-off for your business, you get to deduct from the income you brought in.
Which means you’ll be paying less taxes. Often WAY less in taxes. #win
But, here’s a REALLY important thing: while you can have a fantastic bookkeeper and an awesome accountant, even the best helpers don’t fully know what’s going on in your business.
Now, if you run a traditional business (say, a medical office), there are pretty standard write-offs that everyone should be familiar with. However, even then, professionals you hire are typically not kept in the inner circle as you make your business decisions.
So they’re not going to be laying out all these options when you haven’t even asked (this is also assuming they are experts in small business tax deductions as many are not). And, since they’re not laying out multiple proactive options, you might find out after you’ve decided something and taken action, that your uninformed decision means an extra 5 or 10k out of your pocket for the next few years. #yikes
I know from my own experience, that just knowing what the options are has proactively affected how I choose to spend money and do business.
For example, years ago (looooong before becoming a business tax and money coach), I was running 2 creative businesses. Around 2009, I learned that if my business fit certain criteria and I was making enough income, my business could buy a company car. Now that was exciting to me!
I mean, sure I had a lovely cute little-engine-that-could civic, but one day I’d need to replace my then 10-year-old car, and when that day hit, I wanted to be in a position for my business to buy it! I didn’t want to have to mess with calculating mileage every day… and I wanted to get the biggest write-off auto-wise for my business. And guess, what? In 2016, I bought a brand-new car and financed it in my business’ name. Fun, right?! Obviously, that’s just one example of how understanding tax deductions might help you proactively…
So, you’re wondering once you know what you can write-off, how else can this affect your business?
Well, maybe it’ll influence which house you rent (anyone say home office deduction?), or which conferences you attend, or how you structure your retirement… It’ll also influence how much money you keep at the end of the year (in a hugely positive way)!
I’m all for using professional bookkeepers & accountants for your business (heck, I provided this service for hundreds of clients for years and loved it), but as the business owner, you’re in the driver’s seat and you need to drive!
So Over to You
Do you need to learn more about tax deductions? Any awesome stories to share? Please tell me in the comments below.