Working for yourself can be very rewarding. Everyone wants to be their own boss right? That freedom comes with its own set of responsibilities. Learn more about what deductions you can take as a business owner.
One of the benefits of being an independent contractor or being self-employed is that the IRS treats you as a business. Just like any other business, you’ll be able to deduct eligible expenses which can help reduce your tax liability. This includes costs to operate your business, as well as office supplies, travel expenses, meals, and other relevant expenses. Here are a few examples of common things that many business owners deduct.
· Mileage and vehicle expenses
· Credit card and loan interest
· Utilities, phone, and internet expenses
· Subscriptions and professional memberships
· Advertising costs
· Business meals
· Professional training or certification expenses
· Startup costs
Not everything you spend money on during the course of the year is a “write-off”. You can only deduct the portion specifically used for business purposes. A tax professional can help you determine what’s a business expense and what’s personal.
Do you work from home? If so, you can deduct a percentage of mortgage payments or rent, many other home-related expenses are also a deduction. The total amount will vary depending on whether you use the simplified option (for spaces 300 square feet or less) or the standard method to calculate your deduction. Although the simplified option is easier to calculate, you won’t be able to deduct home depreciation, utilities, repairs and maintenance costs, or mortgage interest. It’s also limited to a maximum deduction of $1,500.
In addition to the self-employment tax and home office deduction, you’re probably eligible to deduct contributions made to qualifying retirement accounts, and certain insurance premiums.
Health, dental, and qualified long-term care (LTC) insurance premiums for yourself, as well as your immediate family, are fully deductible. This includes premiums paid for children under the age of 27, even if you do not claim them as a dependent on your tax return.
If you contribute to a Simplified Employee Pension individual retirement account (SEP-IRA), Savings Incentive Match Plan for Employees (SIMPLE) IRA, or a solo 401(k), those contributions can help reduce your tax bill. The amount you can contribute and deduct, however, depends on the plan type and the annual limits.
Another business expense you can take is your self-employment tax. Remember when we mentioned that those with a 1099-MISC are responsible for both the employee and employer portion of payroll taxes? Well, the IRS helps alleviate that burden by allowing you to deduct half of your total payroll tax from your net income when calculating your income tax.
In order to take this deduction, you must own the property/equipment and it must be used to generate business income. The property or equipment must also last more than a year and have a determinable useful life. Examples of depreciable property include, but is not limited to:
· Buildings you rent to others for income
Any property used for personal use is ineligible. You also can’t depreciate assets that increase in value over time.
Changing your business structure from sole proprietorship to an LLC or partnership can help you save on self-employment taxes. Under these business structures, you can choose to be taxed as an S-Corporation (S-Corp) and pay yourself a salary (reasonable compensation for your industry). Although you’ll still pay the 15.3% self-employment tax on your salary, any additional money your business earns can be taken as dividends or distributions, which is not subject to the self-employment tax. Before incorporating as an S-Corp, however, we strongly recommend speaking with a tax advisor to determine if a change in tax status is the right move for you.
Tax deductions can be a bit confusing but with the right guidance it doesn’t have to be so complicated. For many businesses taxes are one of their largest expenses. At Lifeline Tax Solutions we can help you pay as little as possible on your taxes.
Call us or Schedule and Appointment Today
At Lifeline Tax Solutions, we’ve developed an easy 4-step process. We start with our initial consultation to discuss your situation and answer questions. We then move into investigative review where we pull your IRS records, develop our game plan, and more. If you’re experiencing IRS roadblocks such as tax garnishment or levies, we can help with those as well. Finally, we create your IRS tax relief resolution.
Although IRS tax relief can be a complex subject, you don’t have to go at it alone. Trying to maneuver tax resolution without the proper resources can end up costing you more money. When you hire a professional tax company like Lifeline Tax Solutions, you can be confident that we’ll do the homework for you to see what can save you the most money.
Needing tax resolution can be defeating at times, but you can take some stress off and gain peace of mind that Lifeline Tax Solutions will get it done correctly and prevent additional costs. We offer over 24 years of experience and expertise, to provide you with honest answers, upfront costs, and superior service every time.