3 Easy Tax Deductions That Save Thousands
If you're self-employed, many deductions are available to you that the average person without a business can't take advantage of.
In fact, if you don't have a small business, you might consider the many financial benefits of starting one. Simply making an honest effort to earn income from what is normally just your hobby can open up a lot of tax advantages, even if you keep a regular full-time job.
Consider these tax deductions:
Home office. Whatever percentage of your home is used for business can be used in deductions from your income. For example, if your rent is $1,000 / month, and you use 30% of your square footage for business, you can deduct $3,600 from your income (12 x $300).
The catch is that the space must be used exclusively for business. So, if your parents sleep in your office on Christmas Eve, you lose out on the entire deduction. The IRS is a real stickler on the home office deduction.
Your computer can be deducted as well, also based on percentage. If you use your computer 50% of the time for business, you can deduct 50% of the cost.
You can also deduct the same percentage of your utilities. That includes heat, electricity, Internet, and more.
Even a portion of repairs to your house can be taken as a deduction in the same percent. It must be a repair that affects the whole house, like a new roof, air conditioning system, or flooring.
Of course, any money you spend renovating your home office is also deductible from your income.
You can even deduct your child's allowance by paying them to do age-appropriate tasks around the office like sweeping, dusting, and filing.
Travel expenses. You can deduct your business-related travel expenses, like hotel and airfare. You can also deduct 50% of the cost of your meals on your business trips or even business meals in your hometown.
It's vital to keep a journal to prove that your travel was business-related.
You could even have a working vacation and take the family along. You won't be able to deduct their travel or food costs, but you can still deduct the cost of your hotel room. Of course, it's a moot point if your family members work for you!
If you are also vacationing, be sure you're spending at least part of the time meeting with clients, training, or other business-related tasks. You're asking for trouble if you only spend 2 hours out of a week on business. Be reasonable.
Automobile. You can typically deduct all your vehicle expenses if your vehicle is used exclusively for business purposes. In most cases, your vehicle will be used for both business and personal use, so keep a log of your mileage, designating each trip as personal or business.
In general, all travel between business locations is deductible. So, travel from your home office to the office supply store would be deductible. Travel from one client location to another would be tax-deductible.
However, the miles you drive to your office from your home are not tax-deductible; if your office is located away from your home.
These deductions can be used by mileage or business use percentage. If you use your car for business purposes 30% of the time, you can deduct 30% of your vehicle expenses by mileage. Or, you can multiply your business miles by that year's designated amount from the IRS.
Use whichever method provides the most significant deduction. Typically, less expensive cars would use the mileage method. For more expensive cars, the percentage method provides a larger deduction. Try it both ways.
Having a small business on the side can bring many useful deductions. Just a few are mentioned in this article. With a little planning, a significant portion of your rent or mortgage, utilities, automobile, and travel expenses can be deducted. This can easily save you thousands of dollars every year.