This is a guest post by Jen Deats, tax accountant, blogger, and Etsy shop owner.

“The hardest thing in the world to understand is the income tax.” ~Albert Einstein

Hi all! I am thrilled to be guest-posting on this helpful, insightful blog. As a tax accountant, I get asked many questions about tax tips and tricks for the small business. Your goal is, obviously, to maximize your deductions so you end up paying only a small amount of tax. There are several strategies that you might not be aware of, and they are some of the most beneficial for small business owners.

First of all, let’s talk about software. It is much easier to keep track of your expenses if you are using a software like Quickbooks. This particular software is easily linked to tax software like Turbotax, making return preparation a cinch. If this is not in your budget, and your income and expenses are easily tracked, make sure you become intimately familiar with Excel; spreadsheets can be excellent tools for keeping track of income and expenses, as long as you keep everything up to date. Also, you can often export your bank account history to an excel file via your online banking profile, so make sure your business has its own bank account!

Also, make sure you budget for your taxes. Calculate the basic profit on each item you sell – money received less the cost of materials – and put away approximately 30% for income taxes. This should offer you a nice cushion. If you keep good records, you can alter this percentage over time. For a sole proprietor, your tax bracket depends on your total income [and spousal income, if applicable]. Check out this site for the current tax brackets and base your percentage on how much income you think you will have for the year.

Thirdly, make sure you keep track of all the deductions you can take. Here is a short list of some of the key deductions that you might not even know about!

1. All your materials used in the production of your items. If you use half your patterned paper stash during the year, deduct half of what you paid for it. It is that simple! To make things even simpler, try to keep a manageable inventory of supplies that are depleted.
2. Designate a home office! This space should be used for your business and nothing else (not the family computer that you and your family share, no guest bed, etc.). It can be part of room, if necessary. Put everything in there that you need to run your business. Then, take the square footage of that space and divide it by the total square footage of your home. Take that percent multiplied by your: electric bill, rent or mortgage, professional cleaning fee, etc. You can deduct that amount on your tax return.
3. Also your business phone bills, health insurance (unless you are on a spouse’s), and any contributions to a retirement plan like an IRA can be deducted.
4. In addition, you can deduct your mileage. The IRS sets a specific rate for mileage deductions so keep track of all the driving that you do for business purposes. You can deduct the IRS rate per mile driven on your tax return. Go to the IRS website to find the current mileage rate. Currently, it is set at 50.5 cents per mile.

I wish you much success in your business endeavors!

See more of Jen on her blog, A Tale of 2 Monkeys, or her Etsy shop.

Thanks, Jen. These are very helpful tips!