Sometimes being self-employed can feel like a drag because of those quarterly tax bills you have to mail in every few months. But what if you could find a way to bring down your overall income and save money on your tax bill?
Believe it or not, it is possible to do both by keeping track of various expenses along the way. If you have legitimate expenses they can really help you come tax time. With that in mind I’ve got some tax tips below I’ve learned over my years of running a business. I will put the disclaimer out there though that I’m not a tax professional so make sure to check with a trained tax advisor regarding you and your specific situation. 🙂
1) Your Home Office Can Be a Deductible Expense
Just like buying an item for your business, so too can your home office be written off – as long as it fits within the guidelines of what the IRS considers an office. To make it easier, I’ll refer you to the IRS as to what does and doesn’t qualify. Assuming you do qualify to take this expense it can be a nice way to reduce your tax bill. The amount you can write off will depend on your specific circumstance, but speaking from experience it is a nice deduction to have.
2) Keep Track of Your Mileage
You probably already know that you can deduct your business mileage, but so few people I know actually keep track of it! If your business often has you driving around in your own vehicle, then you should most definitely be tracking your miles and deducting the expense from your overall earnings. Again, according to the IRS, the amount you can deduct for business travel is $.56 for 2014.
Even if your business doesn’t require you to travel from place to place, I bet you still find yourself driving once in a while. If you do drive on occasion for your business my tax tip would be to have a notebook in your car to record the miles. That will allow you to have a record of the travel in the event you ever need it.
3) Insurance Premiums
With a self-owned business often comes health insurance premiums. Keep track of how much you pay and present them to your accountant at tax time. While I absolutely hate the amount we have to pay for healthcare premiums, I guess a fringe benefit of being self-employed is that we can write off those premiums. As an added benefit you should also consider a HSA account to supplement your coverage as that’ll further reduce your taxable liability.
4) Meals, Entertainment, and Gifts
Every time you discuss your business legitimately, you can write off that current event. If you are eating out or entertaining, you can write off these expenses. If you send a gift to a potential client, this can be written off as well. The key to remember though is that most of these expenses can only can be written off by 50 percent. Point being, don’t go crazy when having business meals as you’ll only be able to write off half!
5) Furniture Costs Can Help Too
When you first start out in business, you might have a few larger purchases. The largest of these is often your desk, but don’t forget about the more minor expenses as well: a clock, laptop, wall hangings, your office chair, your guest chairs, and even paint and carpeting (if they are added for the purpose of your office that is). All of these office purchases are can potentially be legitimate write-offs for your business.
Don’t Handle Your Taxes Lightly
Likely my biggest of tax tips for the self-employed is to take them seriously. No brainer, I know, but vitally important. If you’re like most small business owners then you’re incredibly busy. Don’t allow that to lull you into not taking your taxes seriously. My wife and I sit down once a month and go over all our expenses, income, etc. so we can easily hand things over to our account at the beginning of the following year. We’ve used both H&R Block and Turbo Tax in the past, but have gone with a tax preparer recently in order to save us time as well as to make sure they’re done right. Thankfully those charges can be written off as well. 🙂
What tax tips do you have if you’re self-employed? Do you prepare your own taxes or pay someone else to do them?
Photo courtesy of: Tax Credits