February 1, 2018
If you’re like many self-employed business owners, you may be tempted to stick to the tried-and-true tax deductions (your home office, if you have one, office supplies, mileage, meals, etc.) when doing your taxes. However, one important money-saving advantage of working with a tax professional is they can identify lesser known deductions that you may be entitled to, but are unaware of. What are these often-overlooked deductions, you might ask? Here are some examples:
1. Office furniture and equipment offer tax savings. There are significant tax savings to be found in the purchase of new office furniture and equipment. If you invested in a new desk, scanner or filing cabinet last year, you have a couple of options on this year’s tax return:
Which option is best depends on whether you need to reduce your taxable income. If you’ve had a great year income-wise, you’ll likely want to go with option a. If you’re not anticipating paying that much tax this year, then you may want to use option b to depreciate your office furniture expenses instead.
2. Software purchases can soften your tax obligations, too. The potential tax benefits of Section 179, which was recently revamped, don’t stop at office furniture and equipment. If you use any sort of off-the-shelf or cloud-based software, then you may be eligible for another tax break. It used to be that software had to be depreciated over three years. With the new and improved Section 179, however, it can be fully expensed in the year it was purchased.
3. Improve your financial health by deducting your insurance premiums. A favorite topic of every self-employed business owner is, of course, health insurance. However, the conversation doesn’t often turn to how you can deduct these expenses. If you pay your own health insurance premiums, and you weren’t eligible for other healthcare coverage (such as that offered by a spouse) you can deduct 100 percent of the cost, if it doesn’t exceed more than your business’ net profit. In addition, if you have paid premiums for long-term care insurance for yourself, your spouse, or any dependents, you may also be able to write those off as well.
4. Save for the future and lower your tax bill now. As a self-employed individual, being able to retire comfortably is all on you… and it’s dependent on how much you save for your golden years. Contributing to a SEP (Simplified Employee Pension Plan) or an IRA (Individual Retirement Account) allows you to deduct your contribution on your personal income tax return—it’s a double bonus, of sorts. You save tax now and money for later!
5. Self-employment taxes are tough, but at least Social Security contributions are tax deductible. This is important because when you’re self-employed you must pay twice as much in Social Security contributions as you would as an employee. This is not because you’ll get a bigger payout one day, but because you no longer have an employer to pay half. This puts you on the hook for paying self-employment taxes equivalent to 15.3 percent of your net profits. But wait—there is good news: You can deduct half of this amount on your 1040.
6. Cut your taxes with phone bill deductions. Here’s a tax deduction opportunity that many self-employed individuals overlook: the cost of business phone calls. While it may seem insignificant on a daily basis, over the course of a year, calls add up. The key is to track the calls you make for business purposes by going through each monthly bill and totaling them up on a regular basis. At tax time, simply tally your year worth of monthly call costs and deduct 100 percent. This applies to calls made on both a landline and a mobile phone. Be sure to keep a copy of the bills in case you are audited. To keep things even simpler, use separate lines for business calls, making the total expense deductible.
So, there you have it, from scanners to software and social security to savings…there are many ways to maximize your business tax deductions beyond basic ones. It’s not too late to take advantage of them for this tax season, so contact our firm for assistance in determining which ones are applicable to your business.
Source: CPAforFreelancers.com via Advantage Magazine Jan-Feb 2017 issue.
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Is your family’s money mantra, “Easy come, easy go?” Does your family ever talk about saving money or setting financial goals? No matter where your family is on the financial literacy spectrum, it’s important to help your kids learn the value and wise management of money so they grow up to be financially responsible.
There are many details that go into your return, so it is not uncommon to overlook an item in the process of filing a return. It is also possible that after you have filed your return, your employer, contractor, or investment manager will send you a correction on the total income you earned throughout the year.
If you’re like many self-employed business owners, you may be tempted to stick to the tried-and-true tax deductions (your home office, if you have one, office supplies, mileage, meals, etc.) when doing your taxes. However, one important money-saving advantage of working with a tax professional is they can identify lesser known deductions that you may be entitled to, but are unaware of.