This is a guest post written by Mike Piper. Mike is the author of Taxes Made Simple. He also blogs at The Oblivious Investor where he shares his investment knowledge online for free.

You know the old cliche “knowledge is power”? It’s hard to think of anywhere it’s more applicable than at the intersection of small business and taxation.

But who wants to learn about taxes? *Shudder*

The good news is that you don’t have to be an expert. Here are four ways that even a little tax knowledge can help save you money.

1. Make Sure You Qualify for the Home Office Deduction

The rules for claiming the home office deduction are strict, but the deduction can be huge, so you don’t want to miss out if at all possible. If you qualify, you can deduct a portion of your home repairs, homeowner’s insurance, utilities, rent, or just about any other cost related to your home.

In short, making your office “business-use only” could save you a lot of money.

Helpful resource: How to Deduct Your Home Office on Your Taxes

2. Open a SEP IRA or Solo 401(k)

By earning self-employment income, you qualify for additional types of retirement plans beyond the normal Roth IRA and traditional IRA. For example, you could set up a SEP IRA, a SIMPLE IRA, a solo 401(k), or any of several other types of plans. Setting up such a plan allows you to contribute large amounts to your retirement savings while decreasing your current tax burden.

Because they allow for large contributions, a SEP IRA or solo 401(k) would be the best plan for most people. Solo 401(k) plans allow for larger contributions than a SEP–unless your business makes over $245,000, in which case the limit for either plan is $49,000–but they come with higher administrative costs at most brokerage firms.

Helpful resource: SEP vs. SIMPLE vs. Solo 401(k)

3. Understand How “Listed Property” Is Deducted

If you buy an iPhone and you use it for business, you can deduct the cost of the phone, right? Not exactly (unless you use it exclusively for business).

Cell phones, smartphones, and computers are all known as “listed property.” This means that:

• If you use them between 50% and 100% of the time for business purposes, you can deduct the corresponding portion of the purchase price in the year you purchase the equipment.
• If you use them less than 50% of the time for business purposes, then you must depreciate them over several years.

For example, if in 2009 you bought a $2,000 computer, and you use it 60% of the time for business, you can claim a $1,200 deduction for the computer in 2009. If, however, you only use it 40% of the time for business, your deduction would only be $800, and it would have to be spread out over multiple years.

In other words, if you’re buying something that counts as listed property, do everything you can to make sure you use it at least half the time for business.

Helpful resource: How to Deduct Equipment and Supplies on Your Taxes

4. Pick the Right Business Structure

Selecting the best structure for your business (sole proprietorship, LLC, s-corp, or c-corp) may significantly reduce the total amount of tax you’re paying. For example, after paying yourself a “reasonable salary,” any distributions of profit from an s-corp are not subject to self-employment tax. So if you’re earning a large income from your business, forming an s-corp (or an LLC taxed as an s-corp) may reduce your overall tax burden.

Helpful resource: LLC vs. S-Corp vs. C-Corp (The 3-Minute Version)

Editor’s Note: If you are curious how my wife and I came to our decision to form an LLC, you should also check out my article on Deciding On A Corporate Structure as well. The decision becomes quite easy once you determine how you want to run your online business.

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