Home Businesses Tax Benefits - Reduce Taxes
Being self-employed can be expensive. Once you step away from the corporate world all of those expenses once covered by your employer suddenly fall into your lap - including more of the tax bill!
Luckily there is some unique tax breaks designed just for the home based and small business owner to help alleviate some of the tax burden placed on them. Looking for a few extra write-offs this year? Check out these offered by the Internal Revenue Service (IRS):
Home Office Deduction:
Most people underestimate how much they can really deduct when working from home. As long as you have a space in your home that is designated solely to your business; an office, the basement, garage, even a closet - then you can add up the square footage and figure out its percentage to the rest of your home.
For instance, if you've commandeered 100 square feet out of your 1,000 square foot home for business purposes only, then you can deduct 10% of your rent or mortgage; utilities; insurances; from your business taxes.
In some cases you can also deduct an additional percentage of depreciation for the wear and tear your business places on your home and property. Just be careful not to take this deduction within two tax years of selling your home or you will be responsible for capital gains taxes not usually paid on personal property.
Normal Business Costs:
In addition to your home office deduction, you can also deduct the cost of all of your business costs such as equipment and furniture; transportation; office supplies and even retirement savings up to $108,000. See below for more details on specific deductions.
Car Expenses:
Not only can you deduct 48.5 cents for every mile you travel to and from clients; to go to the post office or do business errands, but you may also be eligible for deductions for insurances and lease payments. And, if you plan on buying a new vehicle that weighs more than 6,00 pounds and will be used at least 51% for businesses, then you may be able to deduct up to $25,000 on this year's tax bill.
Retirement Savings:
Self employed people don't have the benefit of getting employer matched retirement savings contributions, so the federal government allows them to save up to $44,000 (tax free) depending on their income in a specially designed SEP plan.
While the tax burden for self-employed individuals can be heavy, there are several options available to lesson it according to the IRS. See your individual business accountant for more information on these and other tax benefits available.
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