Before getting to the tax write-offs for entrepreneurs list I will say this — I’m an entrepreneur, and not a legal or tax specialist. For this post I’m going to concentrate on a couple of general areas you should focus on as you prepare your start-up for taxes, or getting your information ready to provide to your accountant:
How much did you earn the previous year?
To start, you ought to have a dollar amount you earned in the prior year. Usually, it’ll follow the calendar year, yet you have the choice to set up your fiscal year to end at various points. It all gets confusing for me; therefore, I just keep December 31st as my fiscal end-of-year. It’s very typical, yet if you’re paying quarterly taxes, as the majority of freelancers and business owners do, I think it’s possible to figure out your own fiscal year. However, let us keep it simple for this blog. If you are not presently filing on a quarterly basis, I strongly recommend making that happen. There are a few penalties which might happen if you earn over a specific amount and also it might be beneficial particularly if you do not like to write large checks. If you wind up overpaying, which means you did not earn as much as you expected, you’ll get some funds back at the end of the year within the form of a return.
How much to write-off
Let us say I earned $100,000 in one year, and had about $30,000 worth of write-offs. This might mean rather than being taxed upon $100,000 of income, I only would be taxed on $70,000 of my income, which might be the difference of $4500 to $9,000 (or 15 percent to 30 percent) savings. But, with all things tax-associated there are restrictions and rules. Knowing your write-off categories is critical. The below list will assist you in strategizing where to spend funds all throughout the year and where you should not. Here is a list we’ve applied or have plans to apply during some point in our own small business:
Home Office: You have 2 options:
Regular Option – you can deduct the percentage of the home office space square footage from the total square footage.
Simplified Option – write off as much as 300 square feet at $5/ square foot. The Internal Revenue Service has more details here about it.
Utility Costs: It’s possible to write off a percentage of what’s used if you’re using any utilities for your business. If you use certain lines between what’s used for personal and business, you can write off all the business utilities used. They may be things like internet, electricity, phone, and trash if you have an area of operation for your start-up you pay for trash. Write off basically anything which keeps the lights on in your small business.
Business Meals: It’s possible to write off as much as 50 percent of all business-associated meals. You must indicate the date and place, amount of the meal, as well as the relationship of who attended with you for it to qualify.
Travel Costs: To qualify you have to travel far away enough from your work place that you must sleep somewhere else. The Internal Revenue Service provides a complete travel expense list here.
Use of Your Vehicle for Business Purposes: It’ll apply to both buying an automobile committed to business or writing off all mileage utilized for business. It’s possible to take a standard deduction of 56¢/ mile. It changes every year; therefore, check with an accountant. In addition, if you’re buying an automobile for business reasons it is strongly recommended to connect with your accountant on suggestions and breakdown of your best choices for working it out for your start-up.
Business Insurance: Any type of insurance you get to insure your start-up may be written off on a Schedule C. That involves a percentage of renter’s or home insurance if you’re writing off a home office.
Expenses for Medical Care: If you pay for your company’s own medical premiums it’s possible to deduct these here.
Education: If you’re pursuing any type of continuous education to keep you updated in your industry you can deduct such expenses. In order to figure out the precise expenses you can deduct see a list here.
Charitable Contributions: All charitable contributions made from your start-up you can deduct.
Retirement Contributions: If you make contributions to an IRA those amounts may be deducted. The contribution can be seen upon Form 1040 that you ought to receive similar to how you get your 1099s.
Bank Fees and Business Interest: All fees incurred over time on loans you’ve taken for your business or were perhaps charged for bank usages may be written off on the Schedule C.
Dependent and Child Care Costs: The expense of putting your child into daycare or having in-home care so you can run your start-up is a deductible cost for the year.
Mortgage Interest Paid: If there is any property that you own you can deduct all interest on the mortgage whether you improved the home, bought it, or built it. All interest associated with your home ownership can be deducted as you file Form 1040.
Moving Costs: if you move an office or need to relocate for a job (more than 50 miles) you can deduct moving costs for that year. To discover more details, utilize Form 3903.
Professional and Legal Fees: If you employ a bookkeeper, accountant, lawyer, or any services which assist in managing tasks for your start-up you can deduct those costs from your taxes underneath Schedule C.
The above tax write-offs will get you ready for tax season.
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