Let's Beat the Tax Man - Legally, Of Course
Updated: Jun 24, 2022
Did you know that owning your own business opens you up to an entirely new section of the tax code that you didn't
have previous access to as a regular W2 employee? There is massive opportunity for entrepreneurs as far as taxes and deductions go. The tax code seems like it was built the entrepreneur in that there are dozens of tax deductions for businesses and many different ways to get them.
We'll go through some of the top ways owning a business can save you money. Also, because it seems like everyone else says it: I am not a tax professional and this not advice specifically for you. Please educate yourself further and find a good accountant who can help you with this. I am but a mere fountain of information. You'll notice that below I'll use the words "likely", simply to show say that this will apply to most, but not all.
Have you turned a spare room in your house or apartment into your company HQ? Garage to a storage facility for goods? There's good new for you! Most likely, you can deduct the business use of your home which can include insurance, utilities, mortgage interest, repairs - possibly even depreciation. There are different ways to calculate your potential here, but the easiest way is to divide your office space by your total sq ft and then that % can be applied to the above deductions. Example being a 150 sq ft office in a 1,500 sq ft home. 150/1500 = .1 or 10%. That means, likely, you can deduct 10% of the cost of your insurance, utilities, etc from your taxes
Office Supplies and Expenses
No matter what business you own, you definitely have the need for some office supplies - whether is printer ink, paper, notebooks, pens - all of these usual and customary office supplies are fully deductible expenses.
Computers, phones, web cam, software - the cost of these can be written off too!
Your Personal Vehicle
Do you use your vehicle for work in any capacity? Prove that your vehicle is used for business and you can deduct those expenses from your income as well! This one can be a massive deduction for you and there are two ways to claim on this one:
Standard Mileage Rate - Take all the miles you've driven for your business in a year and multiply by the IRS's standard deduction rate (62.5 center per mile for 2022) and that's your vehicle deduction. So simple math tells us that if you drove 4,000 miles for your business in 2022, your deduction would be $2,500.
Record and add up your actual car-related expenses - This option does take some more tedious note taking. You'll have to keep good records of car insurance, registration fees, new tires, cost of gas, repairs, oil change, etc. Add all this up and this is your deduction.
My recommendation would be to keep records of both and then at the end of the year, see which comes out to be more. A good account software like QuickBooks keeps track of all of this for you - I highly recommend this.
For 2022, business owners are eligible to deduct the full cost of business-related food and beverages. In the past, this deduction was 50% but changed under the Trump administration. Hopefully, this deduction will continue. So remember, when you're out wining and dining business clients, new recruits or current employees - the costs are fully deductible expenses.
Traveling for work to a conference? Road trip to try and close some deals? All this travel is deductible - plane tickets, gas, rental cars, conference costs, hotel stay, etc.
Do you have to maintain a specific license for your business? Need permits to operate? Continuing education? All these are tax deductions you'll want to make sure to take advantage of come tax time.
You want to get your business out there so you'll likely have expenses related to ads, signage, brochures, logos, promotional items, etc. These of course are all deductible business expenses, but also sponsoring local events, buying a table at a gala, etc. Getting your name out there costs money, and that money spent is deductible.
Equipment is a broad term but can include things like furniture, cameras, computers, machinery, vehicles, tools, heavy equipment vehicles. All these are deductible but some likely qualify for what's called bonus depreciation - you essentially can deduct the full cost of the equipment in year 1. It's a massive tool at your disposal but you want to be smart about how you use it. You can depreciate over time (a little each year) or a lot at once. Make sure you don't burn all your depreciation year 1 unless you really need it or have a good plan in place.
These examples are just a taste of what's out there for a business. If you have a great idea that you've been wanting to put in motion - now's the time! A whole new world awaits and it's challenging, exciting and rewarding all at the same time.
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