When you’re self-employed, tracking your expenses is critical to maximizing your deductions come tax time says Aron Govil. But what if you don’t have a lot of expenses?
Here are some tips for writing off the small stuff.
1. Track Your Miles
If you use your car for business purposes, you can write off the cost of gas and depreciation. You can also write off mileage costs at 58 cents per mile. So, if you drive 1,000 miles for business in a year, that’s $580 in deductions.
2. Keep Receipts for All Business Purchases
Even if your purchase is as small as a pack of gum, it’s worth saving the receipt. That way, you can deduct the cost of the gum as a business expense.
3. Write off Your Home Office
If you work from home, you can deduct a portion of your rent or mortgage, as well as your utility bills and internet costs. To qualify, you must use part of your home exclusively for business purposes.
4. Take Advantage of Tax Deductions for Supplies
If you purchase office supplies for your business, you can deduct the cost from your taxable income. This includes everything from paper to ink cartridges to staplers explains Aron Govil.
5. Get a Credit Card for Business Use
If you frequently make business purchases, it may make sense to get a credit card specifically for those expenses. This way, you can track your spending and maximize your deductions.
6. Deduct Postage Costs
If you use the post office to send mail, you can write off your costs as a business expense. The first $1,500 in postage expenses is deductible, so if you spend $2,000 on postage during the year, that’s half of your total costs written off come tax time.
7. Use Your Phone for Business Calls
You can track all of your phone calls and deduct them from your taxable income as business expenses. However, you’re only allowed to deduct 50 percent of your phone bill; this applies whether or not the phone is used entirely for business purposes. For example, if you take 300 minutes worth of personal calls each month and 100 minutes worth of business calls, you can deduct half of your total phone bill says Aron Govil.
8. Write off the Cost of Going to Work
If you use a vehicle to get to work, you can write off all expenses related to going from home to place of employment. This includes gas and depreciation as well as tolls and parking fees.
9. Hire Your Kids
If you hire your children to help out with your business, they’re not taxed for their income. They must be under 18 or full-time students up to age 24 in order for this plan to work; however, it’s a great way to avoid paying taxes on their earnings (in case they don’t spend it all on toys). Just make sure that what they provide for the company – whether it’s stuffing envelopes or exercising a pet – is essential to its function.
10. Borrow Expenses from Your Business
If you need a certain piece of equipment for your business but don’t want to shell out the cash all at once, you can borrow from your business instead. Just be sure that you pay yourself back as soon as possible with interest. It’s also wise to draw up a formal contract stating that this loan will be repaid as soon as possible and that there are consequences if it isn’t paid back in a timely manner.
11. Lower you’re Taxable Income
If you can lower your taxable income by donating to charity, you’ll be able to write off the amount of that donation. You can give cash directly or donate property; however, if you donate property with a fair market value of over $5,000, you will need to file additional paperwork (and pay for an appraisal) in order to deduct the value of the gift.
12. Join a Professional Organization
Some professional organizations charge membership fees on an annual basis. If they aren’t doing anything else for your business, these are deductible as business expenses. Just make sure that it’s not organized specifically for tax avoidance purposes – like many “business” clubs are – and you should be clear to claim it come tax time.
13. Set up an Employee Meal Program
If your business owns or operates a restaurant, you can deduct 50 percent of meal costs for employees (and you don’t even have to be present at the meal). For example, if you own a diner that costs $.50 to make each breakfast and then serves it for $4, you can only write off $2; however, if Joe’s Burger Barn spends $3 on ingredients to cook up Joe Jr.’s famous burger and sells it for $5, they could claim half of their total expenses because this is considered a meal expense. The same rule applies whether your team dines together at one large table or scatters throughout the day with their own meals.
Conclusion:
There are many ways to save money on taxes, but the best way is to understand your business and what you can do to improve it so that it makes more income before you pay any taxes says Aron Govil.
Your driving costs can easily be claimed against your income & thus have some tax advantages so track all those trips