![]() Because you are both the employer and the employee of the small business, 7.65% is essentially the employer share, and 7.65% is the employee share. The total self-employment tax rate is 15.3%. Self-employment taxes, which fund Social Security and Medicare, are paid by independent contractors and small business owners. If you are a sole proprietor, you can also deduct contributions made to the plan for yourself. You can deduct contributions made to the plan for your employees. Retirement plan contributionsĬontributions to SEP, SIMPLE, or qualified retirement plans may be tax deductible. It must be related to your current line of work, rather than a new trade or business. You can deduct education expenses that are required for maintaining or improving your skills related to your business. To substantiate your deduction, keep detailed records of your business-related travel expenses, including transportation, lodging, and non-entertainment-related meals. The travel must take you out of the area of your regular place of business, last for substantially longer than a typical workday, and you must need to sleep or rest to perform the demands of your work away from home. Travel expenses may be tax deductible if they are ordinary and necessary for your business. Lobbying expenses are not typically tax-deductible. Reasonable costs incurred to advertise your business are tax-deductible. However, if you have a second line devoted to business, you can deduct the additional cost related to your second line. For example, you cannot deduct the first line of your home phone. ![]() You can deduct phone and internet expenses, regardless of whether you claim the home office deduction, so long as the expenses are directly business-related. For example, if you had $2,000 in car-related expenses and drove your vehicle for business 50% of the time, your deduction is $1,000. ![]() The percentage of business use for your vehicle is applied to the actual expenses to arrive at your deduction. Alternatively, you could also keep records of all your car-related expenses, including depreciation, registration, car insurance, repairs, and gas. The standard mileage rate, set annually, is simply multiplied by the business miles you drove. To deduct mileage driven for work, you can either select the standard mileage rate or the actual expense method. Keep detailed records of your business travel to substantiate your deduction if your car is used for both business and pleasure. Vehicle-related expensesĪs in the previous section with car insurance, other car-related expenses are only deductible to the extent the car is used for business. However, it must also be included in the shareholder's wages which are subject to federal income tax. Health or LTC insurance paid for by an S corporation for shareholder-employees who hold a 2% or greater stake in the company is generally deductible as well. Health and long-term care (LTC) insurance paid by a partnership for its partners is generally deductible as a guaranteed payment to the partners. Please note, car insurance is only deductible to the extent the car is used for business. Liability, malpractice, workers' compensation, unemployment, business interruption, and car insurance are generally deductible, subject to certain criteria. ![]() Insurance premiums for fire, theft, or accident losses are deductible. Organizational costs include the expenses incurred to form a corporation, partnership, or limited liability company (LLC).Ĭertain insurance premiums are deductible for small businesses. Startup costs refer to any amounts paid to investigate or create a business. The allowable startup deduction is reduced by the amount your total startup or organizational costs exceed $50,000 the remainder must be amortized. Startup and organizational costs for a small business can be deducted up to $5,000 each. The simplified option allows you to take a standardized $5 per square foot of home office space, up to 300 square feet or $1,500, as a home office deduction.To do this, you will need to keep detailed records on all relevant expenses. The standard option requires that you calculate the percentage of your home that is for business versus personal use, then apply that percentage to all your qualifying expenses such as mortgage interest, utilities, and insurance.You may now choose between the simplified and standard deduction calculations. Because of its prevalence, the Internal Revenue Service (IRS) designed a simplified option in 2013 to calculate your home office expense deduction. Home office expenses are one of the most common small business deductions. Key deductions include those for home office expenses, health insurance premiums, and startup costs. If you have a small business, you may benefit from utilizing these 10 deductions. Legally lowering your taxable income isn't as thrilling as winning the lottery, but it runs a close second, and it's a lot more likely to happen.
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