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, [easyazon_link cloaking=”default” keywords=”laptop” localization=”default” locale=”US” nofollow=”default” new_window=”yes” tag=”wisedollar-20″]laptop[/easyazon_link], 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
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My tax tip is for car. When I use my car for local business trips, my vehicle expenses for those trips are tax deductible. Transportation expenses are considered an audit flag, however, I make I only take what I am entitled to and that I keep excellent records. I can either deduct the standard mileage rate or deduct my actual expenses.
Good point on the records Jayson. We do that ourselves so we have something to fall back on if we get audited.
Greg does ours and I absolutely hate seeing how much we pay in each year!
I know that feeling all too well Holly! 🙁
Last year was the first year we had my LLCs as part of our tax prep and we learned A LOT in the process. There are so many “extras” you have to think about when you have your own business and it’s critical that you pay attention to all of them.
Our first year was a major learning curve for us as well. Even though we hire our prep out there is still a good bit to keep track of.
I do my own taxes, but it does help that I know what I’m doing (my day job was somewhat related to business accounting) and I keep very detailed records of everything. Paying taxes is a total bummer every quarter though! 🙂
Be glad you have that background! 🙂 I hear ya Michelle. I know it’s a “good” problem to have, but I hate making out those checks.
I am planning on launching my own business soon, so this is really good information. Thank you so much.
Not a problem, best of luck!
Now that I am self-employed, I’ve stopped doing my taxes on my own. I know I could, but I would rather pay someone and know that they are helping me find every tax deduction out there.
For me, the biggest one is saving for my retirement. I make sure to max that out every year, which helps to reduce my taxable income.
I was the same way. I much rather have someone else to do them so they can maximize everything we’re doing.
Great point Jon! It’s a nice way to get two different benefits from one action.
I do my own taxes, but it’s part of my day job so I have the training. I really recommend a new busy owner use a tax professional.
I have the training as well, but I’d rather have an expert do them for us.
I didn’t realize there were so many things that could be written off for taxes! Oftentimes, I feel like even when I use an accountant, if I don’t provide them with all the information they need to do the taxes, there is no way they can get me all of the money back I deserve. That is why it is so useful for me to know what information I need to provide to them! Thanks for the information.