If you are new to being self-employed, you may be unaware of all of the deductions that you may be eligible to take. While this article simply cannot cover all of them, there are some very important ones that you should not overlook.
If you have an area in your home that is set aside exclusively for business, you can deduct that from your income tax. There are two different formulas you may use. The first is quite simple. You multiply the square footage of your home office by $5 and you have your deductible amount. The more complicated method involves multiplying each expense you are claiming by the percentage your office takes up in your home. While the second method may generate a larger deduction, it will also increase scrutiny from the IRS, so make sure your measurements are quite precise if using it.
If you use the internet for any portion of your business, you can deduct either all or a percentage of the cost from your taxes. If you only use the internet line for business, you may deduct 100% of the cost of it. However, since most people do not have dedicated business internet connections, it is safer to simply deduct the combined portion percentage.
While you can’t deduct the full purchase price of a vehicle (unless you are buying a company car), there are aspects of a vehicle that you can deduct. However, if you want to get a newer car to get the most bang for your buck, you can always review a guide from Tire Kickers to compare vehicles. Since you can deduct such things as maintenance fees, fuel fees, and mileage, you can use the guide to compare which vehicle will offer the best value to you and your business.
If your business relies upon certain equipment to function, you can deduct not only the initial cost of the equipment but the cost of operating it as well. If the machinery is of a higher price, you may want to use the method of deduction called depreciation, which tracks its cost deduction over a period of time.
Since many deductions and the rules that surround them can be quite confusing, you may want to use the services of an accountant. Not to worry, however, as you can also deduct accounting fees associated with your business.
Licenses and Certifications
If the business you operate requires you to have specific licenses or to be certified in specific categories, the cost to you of obtaining them is completely deductible from your income tax. Even if there are no licenses obtained, any type of education that you pay for out of pocket, or interest charges related to tuition expenses, can be deducted at the end of the year.
If you need to travel for business, keep those hotel or rental car receipts as those can be taken off the top when figuring out how much you owe at the end of the year.