Keep in mind, if you plan to list your deductions, you will want to fill out a 1099 form. You will then be placed into a different tax bracket: the Self Employed (SE) tax bracket. This tax bracket is similar to the Social Security and Medicare tax that is withheld for regular wage earners. The easiest way to explain this is actually directly taken from the irs.gov website:
Before you can determine if you are subject to self-employment tax and income tax, you must figure your net profit or net loss from your business. You do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040. But in some situations your loss is limited. See Pub. 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) for more information.It can get a little wordy, but I will post more of exactly what that means in a later edition. In this post we are only going to focus on what expenses can be deducted.
The things that you will most want to focus on are the costs of operating your business. The costs of operating your business (as defined by the IRS) are the ordinary and necessary to operations.
- Car and Truck Expenses: You may be able to deduct the costs of operating or maintaining your vehicle, using standard mileage or actual operating expenses. With the standard mileage method, the IRS will pay 56.5 centers per mile. If you decide to use actual operating expenses you would just add the costs of maintaining your vehicle: oil changes, gas receipts, tires, tolls, and even insurance payments!
- Employees Pay/Consultant Pay: If you have paid for any type of services to get your business up and running, this is also deductible. Whether you had someone create a website for you or you are paying for a service. You can also deduct any amount that you are paying an employee whether you are paying in cash, services, or property.
- Travel Expenses: You may also be able to deduct travel expenses if your work requires you to travel (to conferences, meetings, etc.). The expenses that are included in this are transportation, meals and lodging, and even the tips that you include while travelling!
- Home-Office Expenses: You can even write off some of the expenses that you are using at home. To qualify for this deduction, you must have an area of your home that is for exclusive use for your work and your principal place of business. The only caveat to this is that the maximum amount that you are able to deduct is equal to your income for the year.
As with everything tax-related you will most likely want to have receipts and proofs of purchase for everything that you are going to write off in case of an IRS audit. This is just some of the things that can be deducted so you can start to gather any documents that you think you might need for January. If you have any additional questions, feel free to send me an email or visit the IRS Website.
Thank you for reading! As usual, feel free to comment or send me an email! I love to connect with fellow business owners.
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