You’ve just stepped into the world of entrepreneurship. Whether you opened your own online boutique, began freelancing your graphic design skills, or drove for a ride-share company, you have a variety of tax implications to consider – and some of them can slim down your tax bill.
Here are a few of the ins and outs of filing taxes as a self-employed individual.
Working from the comfort of your own home can help you maximize your tax write-offs. If you regularly and exclusively use a home office specifically for your business, you can claim the home office deduction related to that space.
Expenses that may be deducted as part of the home office deduction include a portion of home-related expenses like real estate taxes, mortgage interest, rent, utilities and insurance, based on the square footage of your home office space. You can also deduct the entire cost of repairs and painting needed for your home office.
Are your kids out on holiday or summer vacation? Hire them! Sole proprietors who hire their kids to run deliveries, clean the office, answer phones or enter data can deduct those wages on Schedule C, as long as the compensation is reasonable for the type of work performed. Wages paid to children are exempt from Social Security and Medicare taxes if they are under 18, and they are not subject to federal unemployment tax if they are under 21. It’s also likely that your child will not owe income taxes on these wages, which lowers your family’s overall tax bill considerably.
Save for the future and on your tax bill, all at once! Opening a retirement plan can help lower your taxable income. The most common is a Simplified Employee Pension Plan (SEP). You can put in up to the lesser of 25 percent of your net earnings from self-employment or $56,000 for 2019 ($57,000 for 2020) up until the July 15, 2020 federal tax deadline to lower the taxes you owe on your 2019 taxes. And unlike traditional IRAs you can contribute to a SEP IRA up until the October 15 extended tax deadline. Compare that to the $6,000 cap on IRA contributions ($7,000 if 50 and over) for 2019.
Mileage is Money
While employees of a regular nine-to-five job cannot deduct the cost of driving to and from work, you certainly can if you’re self-employed and driving to see a client, heading to a meeting or going to work from another location.
You can claim 58 cents per mile for 2019, plus the cost of parking and any tolls you paid. Be sure to track your business mileage so that you have substantiation for your mileage deduction.
Tip for the traveling pros: If you’re flying to another U.S. city primarily for business, you can deduct 100 percent of the travel costs. Remember that while you are traveling, you can also expense your hotel or lodging and 50 percent of your meals, though this can only be deducted for the days you’re spending on business.
While dealing with your business and personal life can be busy sometimes, knowing these simple tips can help you easily find business deductions that will lower your tax bite and help you save money for your business.
Don’t worry about remembering this come tax time. TurboTax Self-Employed will ask you simple questions about your business and give you the tax deductions and credits you’re eligible for based on your answers. TurboTax Self-Employed also now has a deduction feature that helps you easily uncover business deductions specific to your industry.
You can also use QuickBooks Self-Employed to track your income, expenses and mileage, and you can capture receipts year-round and then transfer your business information to your TurboTax Self-Employed tax return, making tax-time a breeze.
If you still have questions, you can connect live via one-way-video to a TurboTax Live Self-Employed CPA or Enrolled Agent, with an average of 15 years experience, to get your tax questions answered. TurboTax Live Self-Employed CPAs and Enrolled Agents are available in English and Spanish, year round, and can even review, sign and file your tax return.