Being your own boss is a dream a lot of people strive for. You have independence from a structure of a corporate environment. You get to manage your own time and your resources as well.
You deal with your clients, and you come up with an agreement of what can be expected off of each other without having to work under the client’s management.
Chances of earning more are high because companies will hire you for your skills that they need for a certain time. It is not a longtime commitment, so in the long run, companies get to save on overhead.
You book your own clients, you earn your own income and you manage your own affairs. Taxes included.
While you get to earn more profit, you may not be able to enjoy some things that are enjoyed by folks, who are connected to companies. This could include benefits like health insurance, vacation leave. There is also the security of tenure and the most strenuous of all—taxes.
Since you work for yourself, you will have to pay taxes through individual income tax and if you are not guided well, you will have to pay a hefty amount of money in taxes.
That is why, when you can, you should claim every business tax deductions that you qualify for. This way, you can gain back what you have spent and it will become an income for your small business.
Credit card fees, maintenance of a business property, buying office supplies are some of the tax deductible expenses as they are all business-related.
What are the business expenses that you can write off as tax deductible?
If you work from home, your home is considered your office. Your place of business. Make sure that you prepare a diagram of your office space at home, so that you could show it should the IRS asks.
The office space and other expenses that a business incurs if it had a real office, are deductible as well. These include: utilities, the mortgage, even the depreciation and the property tax.
The size of the home office is also proportional to what is deductible from the electricity bill.
Which means that if your office occupies half your pad, then the deductible from your electric bill is also 50 percent.
Internet and telephone bills
You can deduct your business telephone bill from your taxes and this includes the Internet usage as well. However, it gets a little tricky because you will be using the same line for personal use and not just for business. Make sure you declare the approximate time you spend on the Internet for work and the time spend using the phone and only deduct those.
However, if you have a separate line for business, then you can deduct that 100 percent from your tax.
Since you do not have a corporate insurance, you will have to purchase it yourself. Although it comes at a much more expensive price, the good thing about that is it is tax deductible. These include health, dental and long-term care. Most importantly you can also deduct those insurance plans that you purchase for your spouse and your children who are younger than 27 at year-end.
It can be assumed that you go out on meals to meet with client, entertaining a potential business partner or when you are traveling for business. Fifty percent of the meal’s actual cost can be tax deductible.
IRS, however, wants you to keep all receipts and records and you must be able to present, records of who you were meeting, what went on during the meeting, when and where it happened and what the reason for your trip was.
The IRS will. however. question you if your meals were too expensive.
You can’t go on a backpacking vacation to Western Europe, hand out business cards and let it pass for a business trip.
It must last more than an eight-hour day and must be outside the vicinity of your home office.
If you claim this to be a tax deduction, you need to have mapped out a business plan ahead of time and you are able to find new customers and have met clients. Keep these records and show this to the IRS, who are strict when it comes to this.
For legitimate business trips, your transportation (air fare, cab, car rental, bus or subway) are deductible as well as your hotel stay and, of course, the meals.
It is wise to note that travel expenses are 100 percent deductible but meals is on 50 percent.
Again always keep it at a minimal cost, because extravagant meals or accommodations will make the IRS ask questions.
It is only tax deductible when you enrolled in classes that are closely related to your line of business. Enrolling in an auto cad class to further enhance your architects skills or taking up classes in Photoshop to help out a freelance photographer. The costs for these classes are tax deductible.
Enrolling to be a licensed scuba diver for someone running a pool cleaning business is definitely not tax deductible.
If you paid to advertise your business, the cost for that are tax deductible
The ads could be in the form of ads on social media like Facebook and Instagram, Google ads, on different website and even on the traditional medium like TV and billboard are all tax deductible as well.
Always remember when filing for your income tax deductibles, that the expenses you claim really are business-related. The IRS can be strict and will most likely audit you if you have questionable claims.
But if it qualifies, then by all means, claim it. This is one way of minimizing cost and putting some back into your coffers.
What are the business expenses that are not tax-deductible?
The 2017 Tax Cuts and Jobs eliminated a few of the self-employed tax deductions. One of these is the entertainment expenses. Keep in mind that the IRS did away with the entertainment deductible. Some businessmen say that they take their clients out to watch NBA finals or a Broadway show. This is no longer acceptable. The law, however, is said to have affected small businesses.