Many people are turning to self-employment as a means of earning income and doing something that they love. There is a great opportunity today for someone to be their own boss and start a company even if they do not have a great deal of money. However, being self-employed can be quite challenging when it comes to taxes. That is why we have composed a listing of tax deductions that smart self-employed people can not afford to miss.
Professional Services
A self-employed person can deduct fees paid to licensed professionals like attorneys and accountants, as long as some of the services are done in furtherance of your business. Just make sure you separate the business and personal fees.
Licenses And Certifications
You can deduct any expenses associated with business licenses, certifications, and regulatory fees related directly to your business. This can include incorporation fees and small business licenses for your state.
Rent Or Leasing Payments
If you rent office space, cars, or any physical equipment for your business, all those expenses are deductible.
If you leased your car for a term of 30 days or more, though, you’ll need to reduce the deduction by an “inclusion amount.” For more information, refer to the “Leasing a Car” section in chapter 4 of Pub. 463.
Repairs and maintenance
This category includes incidental repairs and maintenance made to machines and other property. For example, you can deduct costs for painting your office or fixing your broken computer.
Educational Expenses
Any expenses that are work-related education expenses can be deducted.
To be deductible, your expenses must be for education that:
(1) Maintains or improves your job skills or
(2) The law requires you to keep your status or occupation.
However, albeit the education meets either of those tests, the education cannot be a part of a program that will qualify you for a replacement trade or business or that you have to meet the minimal educational requirements of your trade or business.
Expenses that you can deduct include:
- Tuition, books, supplies, lab fees, and similar items
- Certain transportation and travel costs, and
- Other educational expenses, like the value of research and typing
Supplies
Incidental office supplies such as paper, pens, and clips can be deducted from your taxes. However, if the supplies are consumable, such as plastic needed to produce a product, you are limited to only deducting the amount that you use for the tax year, not the total amount that you purchased.
Employee Retention Tax Credit
This credit was designed to help companies retain employees while facing pandemic hardships. Businesses will be eligible for this credit if operations were fully or partially suspended due to the coronavirus shutdown. You can also be eligible if gross receipts for your company went down more than 50 percent compared to the same time period in the previous year.
Businesses that are eligible can get a refundable 50% tax credit on wages with a maximum of $10,000 per employee. The credit can be obtained on wages paid or incurred from March 13, 2020, through December 31, 2020.
Employers will need to report total qualified wages and related health insurance expenses on their quarterly tax returns on Form 941. This needs to be done in the second quarter of 2020. The Employee Retentions tax credit can be taken against the employer’s share of Social Security taxes.
Insurance
A self-employed person can deduct the premium of various types of business insurance. This can include:
- Fire
- Theft
- Worker’s Compensation
- General Liability
Mileage
The Internal Revenue Service allows you to deduct mileage that is used for business purposes.
They are as follows:
- 58 cents per mile for business miles driven, up from 54.5 cents for 2018
- 20 cents per mile driven for medical or moving purposes, up from 18 cents for 2018
- 14 cents per mile driven in service of charitable organizations, unchanged from 2018
Remember to add all business parking fees and tolls paid during the year, as these are deductible too.
Business Travel Expenses
The Internal Revenue Service defines a business expense as the ordinary and necessary expenses associated with traveling away from your home for your business, profession, or job. These expenses cannot be extravagant or used for personal purposes.
The following are valid business expenses:
- Travel by airplane, train, bus, or car between your home and your business destination. (If you’re provided with a ticket or you’re riding free as a result of a frequent traveler or similar program, your cost is zero.)
- Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel, and the work location, and from one customer to another, or from one place of business to another.
- Shipping of baggage, and sample or display material between your regular and temporary work locations.
- Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
- Meals and lodging.
- Dry cleaning and laundry.
- Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
- Tips you pay for services related to any of these expenses.
- Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.)
Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur
As a self-employed person, getting a tax resale certificate can really save you money on taxes.
In short, a tax retail certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that are going to be used in products that you will resell, such as wood for a cabinet.
However, the process can be difficult and the rules are different for each state. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.