Are You Missing Out On Allowable Tax Deductions
By Marie Poliseno
Often times, self-employed dog professionals find themselves in a situation where they owe taxes at the end of the year and may not have been aware of things they could or should have done during the year to manage their tax bill, including being knowledgeable about tax deductions that are appropriate for their business.
First and foremost, planning is key. Don’t just get handed a tax bill at the end of the year. Learn advantageous ways to manage it. Make sure you are tracking your income and expenses accurately, and don’t be afraid to ask questions.
For example, too often clients fail to engage in a dialogue with their tax preparer. A good CPA who understands your industry will take initiative, but it never hurts to ask about tax strategies that could lower your tax bill, including allowable deductions you may be leaving on the table.
Where to Start
The first step is setting up a separate business bank account from your personal one. Once you’ve committed to a discipline of depositing all of your income and paying business expenses from your business account, you’ve gone a long way towards helping yourself to understand your financial picture and the taxes you’ll owe.
The second step is learning to properly categorize your revenue and expenses to determine their tax deductibility. There are various ways to get help with this step, including engaging a CPA knowledgeable about your industry, attending tax related webinars or doing some research on your own.
Next, engage in a dialogue with a tax professional to answer some essential questions, such as:
- Are there any tax advantages to purchasing certain assets for my business, like a car or an SUV? Does one type of vehicle have a tax advantage over another?
- I am planning some major equipment purchases this year, including a new computer and some agility equipment. How will this affect my tax bill?
- Are there any tax strategies I should be employing to lower my bill?
Don’t be afraid to ask questions. You know your business better than anyone, so if something is on your mind, speak up! Your tax preparation should not just consist of handing over some files or receipts to an accountant once a year. Having a consistent dialogue with your CPA throughout the year helps lay out a plan for managing your taxes and provides an opportunity to do something about them proactively. This will often save you money and unpleasant surprises, like owing more than you’ve budgeted for.
Often-Overlooked Tax Deductions
I see too many clients paying more taxes than necessary simply because they didn’t know they could take certain kinds of deductions. Here are some of the most commonly missed ones:
The Home Office Deduction
Did you know that a portion of your home used exclusively for your business is tax deductible? Your home office space is the most obvious candidate. And if you provide boarding or daycare in your home, the space you use for crating the dogs in your care could be considered when calculating the square footage of your home used for business as well. Or perhaps you build agility equipment in your garage and have a workbench dedicated just for that use. Another example is space allocated to store equipment or goods for resale.
Business Use Of Your Vehicle
Many people believe the mileage deduction is always the most beneficial way to deduct the business use of their vehicle, but this isn’t always true. Often times, especially with new vehicles, the depreciation deduction far outweighs the mileage calculation. It’s worth asking your accountant which strategy is best for you given your vehicle, how it’s used, and how much it’s costing you.
Your working or demo dog may be considered a tool of your business. As such, the cost of acquiring the dog itself, including the purchase price or stud fees, may be deductible. The cost of maintaining your dog, such as his food and veterinary expenses, could also be considered tax deductions. Facts and circumstances determine the appropriateness of taking all or a portion of the costs associated with your working dog and should carefully be considered when planning and preparing your taxes.
Meals While Away From Home
How much do you spend on meals and incidentals while sleeping away from home? Conferences are an obvious situation, but there others. For example, I am often surprised when in-home pet sitters do not provide any evidence of meal expenses while they are at a client’s home. They’re often surprised to learn that even if they don’t go out to a restaurant, the cost of the food they bring to an overnight location is tax deductible.
The IRS will allow businesses, provided they have net income, to deduct the entire cost of purchasing an asset in the year of purchase. This is a huge tax benefit, as you can write off 100% of the purchase in the first year, as opposed to having to depreciate it over its useful life.
The rules around this, and all deductions, change often — another reason to keep that dialogue going with your accountant. Knowing about tax law changes can help you make good decisions. For example, about when, what and how to purchase something. (New or used car? This year or next? How much to spend on it? Should I own it or should the business?) Or about how the use of your space. Or which expenses to keep track of.
In short, maintaining an active relationship with a CPA and keeping up on tax laws can keep more money in your pocket at tax time. Who doesn’t like that?
Marie Poliseno is the Managing Partner of Dollars & Scents Accounting Services. She is a Certified Public Accountant (CPA) as well as a professional dog trainer (CPDT-KA) and honors graduate of the SFSPCA Academy for Dog Trainers (CC). To work with Marie on your financial and tax matters, e-mail [email protected] or visit www.dog-pro-cpa.com to learn more about her services.