Starting a business, whether full or part time, can be an easy way to turn everyday costs into tax deductible expenses. As a bonus, your business income can put you on the path to economic self-sufficiency, and it may even help you retire sooner. You can read the full info here on some of the most common deductions used by business owners and the self-employed.
Self-employed people must pay the employer’s portion of Social Security and Medicare taxes. Everyone with a job has to pay this tax, and right now self-employed people are paying 15.3%. Many people see the tax as a roadblock for entrepreneurs, but the IRS has ways to mitigate the damage. You can take half of the tax out of your net income; the IRS treats the tax as a business expense. You only accrue the tax on the net income from your business.
Build a Home Office
This is one of the most complex deductions. Any space you use solely for business purposes, whether you’re a homeowner or a renter, can be treated as a home office deduction. Home office deductions are essential done on the honor system, but you should be prepared to document the deduction (and call for Tax Relief in Brooklyn) if you’re audited. You can deduct the business’ share of your mortgage or rent, your utilities, homeowner’s insurance and maintenance costs.
The US tax code makes it hard for most to deduct health insurance costs. However, if you own a business and you are paying for insurance out of your own pocket, you can deduct all of your health insurance premiums and those of your dependents. Technically, this is a personal deduction, but only the self-employed can access it.
Entertainment and Meals
To deduct these, you must do business with your dining partner before, during or after the meal or event. Unlike other expenses, meals and entertainment can only be deducted by 50%. Examples of deductions include sporting event tickets, meals, or the cost of a round of golf. Be sure to keep records of the business conducted, when it occurred, with whom, and its relation to the expense. Many people try to game the system, making audits commonplace. If you are unsure about deducting business expenses, get Tax Relief in Brooklyn. For more information click here.
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