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 costs 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.
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 vehicle is in the company’s name, then the car or truck is fully deductible.
If the vehicle is in your personal 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 center per mile driven for business use, down from 58 cents per mile in 2019.
No matter which method you select, you’ll got to keep track of what percentage of business and private miles you drive. You can use a manual log or an online app.
Cellphones
You can deduct your percentage of business use from your cell phone bill on your taxes. For example, if you use 30 percent of your personal cell phone for business, then you can deduct 30 percent of the bill.
You can also just purchase a cell phone that will just be used for business purposes.
Equipment and Furniture
Section 179 is a tax law that allows business owners to deduct the full 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 deduct the full price, as long as it is under$2.5 million if it was 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.
- Certain improvements to the interior of commercial property.
Read our handy article Tax Deductions that Every Small Business Owner Should Know to find out 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 then 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 types of 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.
For a full explanation of tax deductions for your home office refer to Publication 587, Business Use of Your Home. In this publication you will find:
- Requirements for qualifying to deduct expenses (including special rules for storing inventory or product samples).
- Types of expenses you can deduct.
- How to figure the deduction (including depreciation of your home).
- Special rules for daycare providers.
- Tax implications of selling a home that was used partly for business.
- Records you should keep.
- Where to deduct your expenses (including Form 8829, Expenses for Business Use of Your Home, required if you are self-employed and claiming this deduction using the regular method).
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, 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
- Certain 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 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.