Self employment has its share of hurdles and stress, but it also carries a wide range of advantages. One of the biggest advantages are tax benefits for entrepreneurs.
So lets take a look…
Tax Benefits For Entrepreneurs #1: Deduct The Tax
While some argue that the self employment tax percentage is higher than the percentage on wages from an employer, you only pay tax on your net business income. And you can even deduct ½ of your self employed tax from that income.
Tax Benefits For Entrepreneurs #2: Deduct Your Home Office
The area of your home that is used as your office can carry large deductions on your taxes. It MUST be used strictly for an office.
You can deduct expenses for your home office including the
- business percentage of deductible mortgage interest
- home depreciation
- property taxes
- utilities
- homeowners insurance
- and home maintenance costs
Since the IRS uses the honor system on this deduction, the wise entrepreneur makes a diagram of their work area with measurements just in case of an audit.
Tax Benefits For Entrepreneurs #3: Deduct Your Health Insurance Premiums
This doesn’t count if you can get employer provided health insurance from your job and managing a home based business part time. But, if you have to provide health insurance for you and your family as a self employed business owner, you can deduct those premiums without itemizing.
Tax Benefits For Entrepreneurs #4: Deduct The Expense Tracker
The IRS has given self employed people the advantage of deducting any tool or resource that will help them with their taxes.
So you can deduct any software, accountants or legal advice that will help you with your taxes.
I mentioned the Expense Tracker which is a business software that I developed along with some other experts that will help you manage your business expenses and find tax deductions you may have never found.
Tax Benefits For Entrepreneurs #5: Deduct Business Travel Expenses
Any expenses incurred by traveling for business can be deducted on your self employed taxes. You can deduct:
- Air fare
- Hotels
- Train, subway or cab expenses
- Rental cars
- Even such things as dry cleaning, baggage fees and business meals
Just be sure and keep receipts so you have evidence of these expenses.
Tax Benefits For Entrepreneurs #6: Deduct Office Supplies
Nearly any supplies that you need to properly manage your business can be deducted. Be it
- Notepads
- Pens or pencils
- Staples
- Software
- Etc…
you can deduct those expenses.
Tax Benefits For Entrepreneurs #7: Deduct Your Phone And Internet Expenses
You have the right to deduct a portion of your phone and internet bill. You have to estimate how much of those services are used for business and you can deduct that percentage of the bill.
I suggest you do not attempt to deduct 100% of those bills because the IRS will most likely audit you. They know you probably do not use that service 100% of the time for business.
Tax Benefits For Entrepreneurs #8: Deduct Automobile Expenses
If you use your vehicle for business, you can deduct mileage and expenses. You will want to keep accurate logs showing miles traveled for business minus personal travel. You can also deduct a percentage of maintenance such as tires, oil changes, etc…
Tax Benefits For Entrepreneurs #9: Retirement Plan
The advantage here is the fact that you are considered both employee and employer. Employees have a limit to the amount they can deposit in a 401k of $18,000 or $24,000 if over 50 years old.
If you are self employed, you can deposit up to $53,000 which is all taken from gross income and brings your net income lower saving you on taxes.
Tax Benefits For Entrepreneurs #10: Deduct Interest
Any interest on business loans and credit card purchases for business items is deductible.
Tax Benefits For Entrepreneurs #11: Deduct Educational Expenses
If you take any courses, buy any books or hire a mentor or consultant for business educational reasons, these expenses are deductible.
Tax Benefits For Entrepreneurs #12: Deduct Advertising And Marketing Costs
This is one of the most overlooked deductions of all… Advertising and marketing IS a business expense and you have the right to deduct those expenses.
Conclusion
If you keep accurate records and logs, you can shrink tax bills drastically.
Entrepreneurs have so many tax benefits, it sometimes amazes me more people are not starting even a part time home based business.
Did this post help you? Use it in your recruiting efforts, because many people do not realize all the tax benefits available.
If you have any questions, just post them below and I will get an answer for you.
Thank you.
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