As a small business owner or self-employed individual, your business puts you in a position to make some sweet money-saving moves to reduce your tax liability by maximizing your deductions. Keep these in mind when filing your Premium return.
Deductions to Take Advantage of:
You've slaved away trying to build your business, now it's time to reap the rewards! In order for an expense to be considered deductible, it must be and ordinary and necessary expense for your line of work/ type of business. There are a number of items and expenses that can be deducted on your tax return when you are a small business owner or self-employed.
- Business use of your home or dwelling: If you use part of your home for business activities, you may be able to deduct a portion of your mortgage interest, cost of utilities, internet, phone line, maintenance and repairs, and depreciation.
- Office supplies and other business related equipment: You can deduct the cost of office supplies, furniture, and other office equipment like computers, printers, etc., that u purchase exclusively for your business. The cost of these items is 100% deductible. You can choose to take the full deduction, or deduct a portion over a few years.
- Software and Subscriptions: You can take a full deduction for expenses incurred by purchasing subscriptions or software that pertains to your business.
- Mileage: You have two choices when it comes to deducting mileage. You can choose to record the number of miles you have driven for business and accept a per-mile deduction, or you can determine the amount of miles you drive for business in relation to the miles driven for personal use, and deduct a percentage of your vehicle expenses accordingly. If you lease your vehicle, the payments you make are also deductible. If your vehicle is financed, you may deduct part of the interest on your loan and the depreciation of your vehicle. Additionally, if your office/ place of business is in part of your home, you can deduct mileage from the second you pull out of the driveway. Otherwise, you must begin computing mileage when you reach your first business related destination.
- Travel, meals, entertainment and gifts: Let the fun begin! If you travel for business, you can deduct 100% of the cost of hotels, dry cleaning, airfare, train expenses, or travel by auto. Any tolls, fees, or tips are also deductible. Meals are only 50% deductible, however. Additionally, most client entertainment expenses are 50% deductible as well. Gifts to clients or employees are 100% deductible, though, provided they do not exceed more than $25.00 per person per year.
- Insurance premiums: Medical insurance premiums are 100% deductible, provided that you are not eligible for insurance coverage through your spouse's employer.
- Education: Most expenses incurred while furthering your education for business purposes can be deducted as well.
- Employees pay: You can deduct the money you pay your employees for the services/ work they provide.
Although there are a number of expenses that can be deducted from your tax return when you are a small business owner or self-employed, it is important to note that in most cases, you will be required to pay estimated taxes quarterly in addition to filing your annual return. Self-employed individuals typically are required to pay a self-employment tax in addition to income tax. This additional tax is designed to pay for social security and medicare.
For more information, check out our other articles for small businesses and self-employed individuals.