10 Tax Benefits for the Self-Employed
There are numerous tax benefits for small business owners. While it is true that being self-employed results in the taking of various risks and assortment of costs that are not normally incurred when working as an employee, this endeavor has the potential to be exceedingly rewarding. This is especially true if you are able to experience the benefits of lowering your taxable-based profit and putting more money into your bank account at the end of the year. The tax benefits for small business owners may result in yielding both personal and professional rewards. You must simply acquire a solid working knowledge of the tax provisions that pertain to deductions associated with your self-employment in order to experience these rewards. The profitability of your small business depends on your ability to minimize your costs and maximize your resources. In this guide, you will be introduced to the top 10 tax benefits that you may qualify for as a result of being self-employed.
1. Vehicle Expenses
One of the first, but most overlooked, tax benefits for small business owners are expenses that are associated with the use of a vehicle in your business. It does not matter if your business owns a vehicle, or if you simply use your vehicle for your business, you have the ability to deduct a portion of the expenses that are required to keep it going. There are two different methods that may be used to claim vehicle expenses with the Internal Revenue Service. The first is to track and deduct any and all business-related expenses. The second is to deduct a specific amount for each mile that you have driven while working in your business. The second method allows you to include driving toll fees and any type of parking fee. The amount that you are allotted per mileage rate is referred to as the “standard mileage rate”. In the year 2015, for example, this rate was 57.5 cents for each mile.
2. Travel Expenses
While we are on the topic of vehicle deductions, we may as well touch on travel expenses. This is the next of the top 10 tax benefits for small business owners. While traveling, there are varieties of expenses that may be deducted. Examples include vehicle usage and operation, lodging, meals, clothing services, tips provided while on the trip, any type of transportation fare, and even the costs associated with making telephone calls. If you are self-employed and your position requires you to travel, be certain to keep your receipts and deduct the expenses that you experience while on your trip.
3. Internet and Phone Expenses
As a small business owner, it is quite likely that you utilize the phone and the internet to conduct or engage with customers. Many do not realize it, but, these expenses may be deducted each year. In order to achieve success in these deductions, you should only deduct the phone and internet expenses that pertain directly to your business. If you are self-employed and use the same internet service and phone service for personal use, you should only deduct a portion of the expenses, such as 50%. If you have a dedicated phone and internet service for your business, you may deduct 100%.
4. Professional Fees
The next of the most popular tax benefits for small business owners is the ability to deduct professional fees. These include fees associated with business books, tax professionals, lawyers, and consultants. If you pay for it, you can likely deduct it, as long as the professional fees directly pertain to your small business.
5. The Home Office
If you are self-employed and have a home office, there are tax benefits available to you! While it is a complex type of deduction, it is available to you, nonetheless. Any workspace that you use on a regular basis and exclusively for the business that you own and operate may be deducted as a “Home Office” expense. You should measure off the space that you use. If the home office takes up 10% of the total household space, you have the ability to deduct up to 10% on your electric bill, mortgage, property taxes, and home maintenance. When it comes to tax benefits for small business owners that are self-employed, the home office is one of the most popular.
6. Premiums for Health Insurance
The 6th of the top 10 tax benefits for small business owners are premiums that are paid for health insurance coverage. Those that are self-employed, pay for their own premiums, and were not eligible to be a part of another person’s (such as a spouse) health insurance plan may deduct all premiums associated with health insurance, dental insurance, and long-term care insurance.
7. Publications and Business-Related Subscriptions
If you are self-employed and own a small business, you may deduct publications and subscriptions that are directly related to your business. For example, if you are a real estate agent, textbooks, magazines, and publications pertaining to real estate would be tax deductible; however, similar forms of media on hobbies, such as golfing and fishing, would not be tax deductible.
The 8th of the top 10 tax benefits for small business owners is being able to deduct education expenses. As long as the education that you have received results in you improving your skills for your company or related to maintaining your position in your company, it is deductible. For example, if you work in sales, you may deduct any coursework in communication or improving your bottom line in sales; however, courses such as yoga or martial arts would not be an acceptable deduction.
9. Advertising and Marketing
If you are a small business owner, it is quite likely that you advertise and market your business on the internet and off the internet. The great news is, advertising and marketing endeavors are considered to be tax deductible.
10. Charitable-Based Contributions
The final benefit of our top 10 tax benefits for small business owners are charitable-based contributions. In order to deduct these expenses, your business must be considered a “Partnership”, a “Limited Liability Company”, or an “S Corporation” in order to pass the deduction directly to you. If your business is considered to be a “Corporation”, the business – as a whole – may deduct the contributions.
As you can see, based on the information within this guide, there are many tax benefits for small business owners. While this overview makes the deductions appear simple in nature, it is important to understand that each carries its own share of complications; however, at least you are provided with a solid, positive, and productive starting point to lowering your taxable income and putting more money back in your business bank account. If necessary, reach out for the assistance of a professional in order to maximize your deductions for optimal profits at the end of the tax year.
Bill Kinder @BKAssocAdvisors
Bill Kinder is the President and Chartered Financial Consultant with Bill Kinder & Associates. A company that helps people from all walks of life and income levels to position & manage their money wisely, minimize their taxes owed, protect their assets and plan for a comfortable retirement. Bill has been in business for over 35 years, holds a BS degree, plus a Chartered Life Underwriter and Chartered Financial Consultant certifications, as well as the Million Dollar Round Table’s “Top of the Table” honor. To date, he’s helped over 6,000 clients with their financial or estate planning needs. Follow him @BKAssocAdvisors or if you would like to ask him a question, send it to firstname.lastname@example.org. If you’d like a FREE ‘WISE Money’ Consultation, call him at (304) 250-0250.