If you’re running a home-based business or a virtual storefront, you have access to multiple tax credits and deductions that can significantly reduce your tax liability each year — if you know how to apply them. But without a knowledgeable accounting team on your side, these benefits are easy to miss! And the chances of misclaiming your deductions and racking up tax penalties is high.
Once your home-based business has grown to the point where you’re spending hours every week managing your expenses — or you’re worried you’re missing valuable deductions along the way — outsourcing your accounting is an important consideration.
In this article, we’ll cover some of the most beneficial tax deductions owners of virtual businesses can take to maximize their earnings and minimize their tax burden. We’ll also look at how outsourcing your accounting can save your business time, streamline tax season, and protect you from the risk of tax penalties.
Let’s dive in!
1. The home office deduction
The home office deduction is one of the most helpful and well-known deductions claimed (and misclaimed) by home-based businesses each year. But it can be particularly difficult to track and claim correctly.
In order to qualify for this deduction, you must use a portion of your home exclusively for running your virtual business. You also must document how much time you spend working in that space, and what other purposes the space serves — like a home gym or guest room. If your home office serves multiple purposes in your home, that impacts the amount of deductions you’re eligible to claim. Taking advantage of this deduction also requires an exact calculation of your business expenses related to the home office, with receipts and documentation to back up the purchases.
If you don’t have expertise in accounting and taxation, it can be easy to make mistakes or miss out on potential home office deductions. That’s why outsourcing your accounting to a team of professionals can be beneficial for maximizing your deductions and avoiding costly errors when filing your taxes. Professional accountants are experienced in navigating the complexities of tax law, and will ensure that you receive all available deductions while remaining compliant with regulations.
Best of all, handing this daunting tax task to an outsourced team saves you considerable time and unnumbered headaches every tax season!
2. Most reasonable marketing expenses
Did you know you can deduct your advertising and business promotion expenses from your business tax liability? But certain restrictions apply. To be eligible for a deduction, your marketing methods must be directly related to your business’ efforts to promote its services and products, must be necessary for the successful operation of the business, and must be considered a reasonable and justifiable cost. In other words, buying a new Maserati, painting your company’s logo on the side, and deducting the cost as a business expense probably won’t fly!
When you outsource your accounting and taxation, you’ll have a team available 24/7 to help you understand which marketing costs are “reasonable and justifiable” and what documentation to keep track of. Together, you can optimize your business deductions while making the most of every marketing dollar you spend. That’s a win-win!
3. Insurance premiums
Home-based businesses can deduct the cost of insurance premiums they pay for business use, like liability insurance, property insurance, health insurance and more. This is especially beneficial for virtual businesses that purchase additional specialized insurances, like professional indemnity insurance (which protects service providers from liability) or cyber liability insurance (to cover your losses in the event of a data breach).
With insurance premium deductions available, safeguarding your company’s future is even more affordable. And your outsourced accounting team can help you gather the right paperwork and receipts to ensure these deductible expenses are reported properly on your tax return.
4. Your outsourced accounting team!
Did you know the rate you pay your outsourced accounting team is often considered a legitimate business expense? As long as the rate is reasonable, their work directly benefits your business, and you keep detailed documentation of payments to your accounting team, you can deduct this expense and benefit from even greater tax savings. Not only does outsourcing your accounting save your business taxes, time and frustration — the cost itself is a write-off!
When you’re no longer able to keep up with the complexities and ever-changing regulations of tax law, it’s time to look at outsourcing this essential activity. Professional accountants have the deep experience needed to help your virtual business maximize every available deduction, avoid tax penalties, and stay compliant. With an outsourced team on your side, you’re free to focus on growing your business and enjoying the rewards of your hard work.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
Want more? In addition to taxes, accounting, bookkeeping and CFO services through its FinOps, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting and payroll) and Risk (business insurance). Talk to an expert today.