Whether you’re a solopreneur, have a business with employees or want to build a side business, there are plenty of benefits to self-employment income.
One is the array of tax deductions you may be eligible to claim. Taking advantage of legitimate tax breaks is a critical way to cut taxes and save money as an entrepreneur.
Here are seven ways having a small business can save you money.
1. Deducting business expenses on your taxes
Business deductions include anything ordinary and necessary for your trade or business, such as:
- Employee salaries and benefits.
- Labor paid to independent contractors or freelancers.
- Professional fees, such as accounting or legal services.
- Rent for your office space or equipment.
- Equipment, such as phones, computers and printers.
- Office supplies, such as pens, paper, postage and furnishings.
- Marketing and advertising.
- Continuing education.
These and other tax write-offs help business owners reduce their taxable income and taxes owed.
Read also: 8 ways to save money on business taxes
2. Deducting certain home office expenses
If you use part of your home for business, you may qualify for the home office tax deduction. According to the IRS, you’re eligible if you meet the following two basic requirements:
- Regular and exclusive use: You use part of your home to conduct business regularly.
- Principal place of your business: You use your home as your primary place of business.
The home office deduction allows you to claim direct and indirect expenses on your tax return. Direct expenses are 100% tax-deductible and include items related to your home office, such as:
- Improving floor covering.
- Upgrading bathroom fixtures.
- Installing new shelving and window treatments.
Indirect expenses are partially deductible based on the size of your home office. They include everyday costs required to run your home, such as:
- Rent or mortgage interest payments.
- Property taxes.
- Property insurance.
- Maintenance.
- Cleaning.
- Utilities.
3. Deducting business use of your vehicle
You can deduct your entire cost if you use your vehicle solely for business. However, if you use it for business and personal purposes, you can claim the portion used for your business. You can track your vehicle expenses throughout the year (such as gas, oil, repairs and insurance) or claim a standard amount per business mile driven.
4. Deducting business insurance expenses
The right insurance for your small business is essential for surviving unexpected hardships. And the good news is the following are tax-deductible if you’re self-employed:
- Business liability insurance.
- Business interruption insurance.
- Errors and omissions insurance.
- Malpractice insurance.
- Property insurance.
- Cyber theft insurance.
- Auto insurance.
The catch with auto insurance is that you can only deduct premiums if you use your vehicle entirely for business or have a separate commercial auto policy. If you claim the standard mileage rate, it includes insurance, gas and maintenance expenses.
With health insurance, your premiums are tax-deductible unless you’re eligible for another employer’s plan. If you need help purchasing coverage, visit the healthcare marketplace at Healthcare.gov.
Most of your expenses are deductible if you have a multi-day business trip. For example, your airfare, ground transportation and lodging are all 100% tax-deductible. However, your meal costs are typically deductible up to 50%.
If you extend your trip into a vacation, you can also save money by deducting the portion of business expenses from your total cost.
6. Deducting retirement contributions
Contributing to a retirement account is another excellent way for entrepreneurs to save money. Traditional, pre-tax plans reduce your annual taxable income and help boost your nest egg.
If you don’t already have a retirement account, here are two popular plans:
- SEP IRA: A plan for anyone self-employed with or without employees. For 2024, you can contribute up to 25% of your compensation up to $69,000.
- Solo 401(k): A plan for anyone self-employed with no employees other than a spouse. As an employee, you can contribute up to $23,000 in 2024 or $30,500 if you’re over 50. As your own employer, you can also contribute up to 25% of your compensation, up to $69,000 or $76,500 if you’re over 50.
7. Deducting interest paid on business loans
If you take out a loan for business purposes, it’s not included as taxable income. Therefore, when you repay it, your principal payments are not tax-deductible. However, you can typically deduct the interest portion as a business expense.
If you have a business or are considering becoming an entrepreneur, take advantage of these legitimate ways to reduce your taxes, cut expenses and save money. If you have questions, consult a tax professional for specialized advice.
This post was originally published on here
