Tax Tips for Proprietorships
- As you're going about your daily business duties, you will likely accumulate a stack of receipts that count as deductible expenses. Discipline yourself to put these receipts aside immediately. Pull out a pen right after the purchase, circle the deductible items and write down the purpose if it's not clear. Store the piece of paper in a receipt and document organizer (see "Resources" for an example), which can be placed in a purse or your back pocket when you're out shopping.
Use a manila envelope to hold your receipts in your office. Write the year on it. Each day, pull out your business-related receipts and place them in the envelope. When tax time rolls around, you can then pull out your receipts and categorize them by your major expenses, such as office expenses, supplies and travel costs. - If you drive regularly in the course of business, keep a composition notebook in your car to record your mileage. Write three columns: date, activity and number of miles driven to and from the activity. At the end of the year, add up your total miles driven for business---you will multiply this figure by the standard business mileage rate, which varies each year (see "Resources" for the current rate).
- Don't forget these three often overlooked deductible expenses that will likely apply for sole proprietors when you are doing your taxes: contract labor, repairs and maintenance, and rental equipment. When you hire people to do work for you who are not your employees to save money, even if it's just someone to hand out fliers in front of your small business, categorize that cost under contract labor (line 11 of Schedule C). As a sole proprietor, you won't always be able to afford to get new equipment, so you will probably pay a good amount of money having your existing equipment repaired. That expense is deductible on line 21 of your Schedule C. Finally, any equipment that you rent instead of buy for business use, such as a car or high-output printer, can be deducted as well on line 20.
