Become Proactive
Business taxes are determined by net income. If you use an online accounting system and enter all income and expenses, the system will automatically provide you with a gross profit figure. Those that use spreadsheets, please add up the numbers so you can forecast what you owe.
Starting Up
Even though starting up a business is easier than ever before, there are still costs associated with any new venture. Luckily, You can deduct up to $5,000 of all the expenses related to starting a new business if your business was started this tax year. This can include things like market research and advertising for your business launch.
Increase In Interest Deductions For Small Businesses
The CARES Act allows you to increase the amount of interest expense that you are entitled to deduct from 30 percent to 50 percent. This applies to tax returns filed in both 2019 and the ones filed in 2020.
Writing Off Facility Improvements
The CARES Act allows businesses to start writing off the cost of improvements to the interiors of nonresidential buildings. This will expand the tax deduction to 100 percent of the price, and the premises can be applied immediately. This is effective from 2018 to the present, so businesses can amend older tax returns to recover costs from improvements made in 2018 and 2019.
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
Vehicle Expenses
So, if a self-employed person uses their vehicle for 100 percent business use and the car is in the company’s name, then the car or truck is fully deductible.
If the vehicle is in your name and used partly for personal, partly for business use, then there are two ways to calculate the deductions.
Track your actual car expenses, including gas, maintenance, insurance, and depreciation, and deduct a percentage supported by the number of business miles you drive.
Deduct a typical rate on each “business” mile driven for the year. For 2020, the quality mileage rate is 57.5 centers per mile operated for business use, down from 58 cents per mile in 2019.
No matter which method you select, you’ll have to keep track of the percentage of business and private miles you drive. You can use a manual log or an online app.
Cellphones
You can deduct your business use percentage from your cell phone bill on your taxes. For example, if you use 30 percent of your cell phone for business, you can deduct 30 percent of the bill.
You can also just purchase a cell phone that will be used for business purposes.
Equipment and Furniture
Section 179 is a tax law that allows business owners to deduct the total purchase price of qualified equipment from their gross income. Rather than deducting a certain percentage of the equipment under a multi-year depreciation schedule, as is customarily done, business owners can remove the total price, as long as it is under$2.5 a million if financed or purchased in 2018.
Qualified assets for Section 179 include:
- Machines or equipment purchased for business use.
- Office furniture.
- SUVs, pickups, and vans weighing more than 6,000 pounds.
- Specific improvements to the interior of commercial property.
Read our handy article Tax Deductions that Every Small Business Owner Should Know to learn about more money-saving tax deductions.
Advertising
Self-Employed people should keep in mind that all advertising costs are fully tax-deductible.
This can include the following.
- The cost of printing business cards, flyers, and mailers
- Social media advertising like Facebook ads
- Promotions at conventions and trade shows
- The cost of advertising agencies
- Television and radio advertising
- Employing freelancers
You can also deduct all commissions paid to non-employees for sales and marketing purposes. This can include payments to individual sales reps or marketing channels and a platform like Amazon.
Depreciation
If you have a business asset that is expected to last more than one year, you can depreciate the cost of the asset over its life rather than deducting the cost of the asset the year that you purchase it. Depreciation is fully deductible. Examples of assets that can be depreciated are:
- Cars
- Furniture
- Technology like computers
- Improvements to leased property
You can not include inventories, stock-in-trade, and land cannot be as a depreciated tax deduction.
Employee benefits
If you have employees and provide health insurance and other benefits, you can fully deduct the costs of those benefits.
Home Office Deduction
Using part of your home for business allows you to deduct expenses for the business use of your home. This can be applied to all homes, including business owners who rent.
If you use your home exclusively and regularly for conducting business, you can deduct the following:
- Mortgage Interest
- Insurance
- Utilities
- Repairs
- Depreciation for that area
To qualify for the home office deduction, you must show that your home is used regularly and exclusively for conducting business and is the principal place of business.
Educational Expenses
Any expenses that are work-related education expenses can be deducted.
To be deductible, your payments 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, even if the education meets either of these tests, the education can’t be part of a program that will qualify you for a new trade or business or that you need 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
- Specific transportation and travel costs, and
- Other educational expenses, such as the cost of research and typing
To determine if your work-related expenses are deductible, see Are My Work-Related Education Expenses Deductible?
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 save you money on taxes.
In short, a retail tax certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that will be used in products that you will resell, such as wood for a cabinet.
However, the process can be complicated, 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 dealing 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.