Although the tax year 2020 individual tax filing deadline has been extended to May 17, 2021, the tax year 2021 quarterly estimated tax deadlines remain the same. The first 2021 quarterly estimated tax deadline is April 15, 2021.
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.
Before learning about the ins and outs of filing taxes as a self-employed individual, know that you don’t need to worry about remembering all of this come tax time. TurboTax Live Self-Employed tax experts are available via one-way-video with unlimited tax advice for your personal and business income and expenses, and can help you get industry specific tax deductions and credits you’re eligible for. You can even fully hand over your taxes to a TurboTax Live tax expert who can do them from start to finish — all from the comfort of your home — with TurboTax Live Full Service.
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.
Part Time Hires
Are your kids out on holiday or a school break? 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 for self-employed 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 $57,000 for 2020 ($58,000 for 2021) up until the extended October 15 tax deadline if you filed an extension and lower your 2020 taxes. Compare that to the $6,000 cap on IRA contributions ($7,000 if 50 and over) for 2020 that have to be made by the May 17 extended tax deadline.
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 57.5 cents per mile for 2020, 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.
Under the Coronavirus Response and Relief Supplemental Appropriations Act passed on December 27, 2020, 100% of business meals (rather than the current 50%) will be deductible beginning in tax year 2021 (the taxes you file in 2022) through tax year 2022 as long as the expense is for food or beverages provided by a restaurant.
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 taxes and help you save money for your business. If you still have questions, you can connect live via one-way-video to a TurboTax Live Self-Employed tax expert, with an average of 12 years experience, to get your tax questions answered. TurboTax Live Self-Employed tax experts are available in English and Spanish, year round, and can even review, sign and file your tax return.
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.