Tax Breaks For Your Small Business

Tax time is often dreaded, especially by those who are struggling to get their small business off the ground. You may think that you will have to pay someone to do your taxes, but it is really more straightforward than you would think.  There are a few pros and cons about being in business for yourself, but you can use some things to your advantage.

First, keep receipts for every expense, no matter how small.  Almost every expense can be directly deducted or depreciated. Second, keep a logbook for your business mileage. The IRs insists on written documentation. Third, if you use your vehicle or part of your home for your business,  the IRS allows a percentage as a deductible.

Expenses are many when you own your own business.  Anything you do to maintain or repair items that are related to your business are a direct expense and can be taken off the top. In order to be eligible expenses,  they must be both ordinary and necessary. For instance, advertising, work-related fees and commisions, office expenses and supplies, and utilities are all eligible expenses. Money that you pay to others for maintenance and repairs are also deductible.  Taking a ride in a hot air balloon to "advertise" your business will probably be questioned as it is neither ordinary or necessary.

Mileage that you drive in the course of your business is also deductible, but usually at a percentage.  You must keep accurate records and know which miles are business and which are personal. The going rate for mileage is either 50.5 cents per mile or 58.5 per mile, for the first and second half of the year, respectively. If you drive your car for business 60% of the time, that will be the percentage of depreciation that you can deduct from your business income.  In addition, maintenance of your vehicle and other travel related expenses can be deductible.

Using a portion of your home as an office is also deductible.  You can either divide the house by square feet or by the number of rooms.  You can also deduct a portion of your mortgage interest, rent, insurance, real estate taxes, and utilities.  In addition, you can deduct a portion of the depreciation as a business expense. The down side is that if you sell your home, the IRS will want to "recapture" the money that was deducted in previous years and it could build up to quite a bit of money.

All in all,  the government allows for a little leeway in your small business endeavors.  If your business income is less than 400 dollars after expenses, then a schedule C is not required.  Freelance writers, in particular, can benefit from many of these tax breaks.

published 2 years ago

janiek13

762 points