Tax Deductions You May Be Eligible for as a Small Business or Freelancer
Tax season can be stressful, especially for small business owners or freelancers who might owe taxes at the end of the year. It can be overwhelming to look at the tax debt you owe from the profits you have made.
Our law firm focuses on tax resolution and helping people who owe the IRS or State of Indiana $10,000 or more. We’ve seen small business owners and freelancers get blindsided every year by a huge tax bill. That nasty surprise often leads to them falling behind on their taxes for years on end. If that’s you, we can help. Contact our firm today to discuss your option to deal with what you owe the IRS or the State of Indiana.
So, if you’re worried about how you’re going to pay your tax bill this year, here are some things to review. There are many legitimate deductions you can utilize as a small business owner or freelancer to bring your tax liability down. We encourage you to talk to a tax professional to see if any of the following deductions apply to you.
1. Home Office
If you have a home office, you will be able to deduct a part of your rent or home expenses as an expense for your business. Be careful. Home office deductions require a dedicated office space with exclusive use for business. That means no other use, including personal use. So speak to a tax professional to find out if you qualify. In addition to your home office, you can deduct any related office supplies you used over the year. Keep the receipts for paper, ink, and any other home office supplies you’ve purchased. You should also be able to deduct any technology you bought specifically for work. If you have a work computer, internet, and office furniture, those can maybe qualify you for a tax deduction. Furthermore, you can deduct any expensive software programs you need to purchase for work like adobe photoshop or your word processor.
2. Insurance Premiums
If you work from home, you may be able to deduct your health insurance costs or any other insurance that is required for your job. If you have to purchase liability or malpractice insurance, that is a work-related deduction.
3. Travel Costs
If your work requires you to travel, the cost of that travel is a deduction. Hotel costs, mileage, and even food you eat during work trips are deductible expenses. However, if you are partially traveling for work and luxury at the same time, you have to be careful. Any portion of your trip used for a personal vacation is not a deduction. You can only deduct expenses that are specific to your work costs.
NO ESTIMATING!! Remember that you have to keep a mileage log if you are claiming car or truck expenses which must be recorded near the time of use. You also must keep receipts of your expenses. Credit card statements are not enough to prove the actual expense - the specifics of what the expense was for must be verified with a receipt.
4. Advertisement Expenses
If you’ve spent any money advertising your business, you can use that expense as a write-off. Any advertisement will qualify as a deduction whether you created online ads or utilized influencer marketing for sponsored posts. If you spent money promoting your business, record that expense for your tax records and keep your bills and any receipts.
5. Car Expenses
If your automobile is an integral part of your work, you can deduct expenses associated with it. You can itemize costs like auto insurance, gas, and any maintenance work you paid. However, you can only deduct the expenses you utilized while working. If you used your business car as a personal car, you could not deduct all these expenses. You will have to apportion them. It may be simpler to claim the business mileage rate. You have to keep a mileage log that records the beginning odometer reading, end of the trip odometer reading, where you went, and why you made the trip. Also, record your odometer reading on January 1st of each year and December 31st, too. Your mileage log is just about the first thing an auditor asks to see in an audit if your claim this expense, so keep good records.
6. Occupational Licenses
If your business or freelancing job requires you to have a license in your field, then that license is a business expense in any tax year you have to pay for your occupational license.
Owe Back Taxes and Need Tax Relief?
While many of these tax breaks may seem incredibly appealing, incorrectly claiming them can result in an audit or the IRS disallowing your deductions and charging you penalties and interest on your tax debt, making your problems worse.
If you want a tax lawyer who knows how to navigate the IRS maze, reach out to our firm, and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.
Four Ways Small Business Owners, Freelancers, and Gig Workers Can Trim Their Tax Bills
It is hard to beat the freedom and flexibility of being a small business owner or freelancing and gig work. When you work for yourself, you are the boss. You can set your own hours, turn your home into an office, and even ditch going into “the office” and the daily commute.
That’s great, but there is one thing small business owners, freelancers, and gig people usually forget. Compared to their corporate counterparts, self-employed people face an additional tax burden, an expense that takes many of them by surprise. Since they aren’t employed by an employer who pays employer’s taxes on an employee, they have to pay self-employment taxes.
Note: If you end up falling behind on your taxes and the IRS or state claim you owe $10,000 or more, reach out to our tax law firm, and we’ll schedule a confidential consultation.
If you love the freedom of being your own boss but not the big tax bill, you need to think ahead. A little proactive planning can go a long way to keep more of your hard-earned money in your pocket and not Uncle Sam’s. Here are four smart strategies you can use to trim your tax liability and get more out of your freelancing and gig work.
#1. Fund a Health Savings Account
If you work for someone else, there is a good chance your boss picks up part of your health insurance costs, but small business owners, freelancers, and gig workers do not have that benefit. Self-employed people face additional challenges when it comes to health care. They face seeking affordable policies on the open market and trying to save money where they can.
The self-employed can save money and trim their tax bills with a Health Savings Account. Eligible individuals can contribute to a health savings account on a pre-tax basis. This tax savings can be a very big deal. It also creates a significant tax deduction while making their health care more affordable.
#2. Contribute to a Retirement Fund for the Self-Employed
Small business owners, freelancers, and gig workers need to look out for their own retirement, but plenty of options are available. The annual contribution limits on retirement plans for the self-employed are among the most generous around, so you may be able to shelter a significant portion of your earnings from the taxman.
If you have a tax ID for your business, you may be able to contribute to a solo 401(k). This plan works much like a traditional 401(k) plan, but the contribution limits could be even higher. Even if you do not have a tax ID, you can shelter part of your freelance or gig work income with a SEP-IRA or similar retirement plan.
#3. Take the Home Office Deduction
If you work out of your home, taking the home office deduction could save you a lot of money. If you are eligible for this valuable deduction, it creates deductions for things you already pay. You could write off a portion of your property taxes and other homeownership costs, reducing your tax bill and keeping more money in your pocket.
Remember to qualify as a Home Office you can deduct, it has to be used exclusively for your business, no personal use. There are specific rules regarding the home office deduction, so check with your tax preparer to make sure you qualify. If you can take the deduction, be sure to keep accurate records and take photos of the office in your home.
#4. Pay Estimated Taxes
No employer is taking your withholding taxes out of your paycheck when working for yourself. Instead, you have to make estimated tax payments each quarter. If you don’t make them, you will be penalized by the IRS and the Indiana Department of Revenue for not making them.
Perhaps, even more critical, when it comes time to pay your taxes, you could easily end up without enough money to pay your taxes when you come up to the deadline to file your tax returns. This is an easy way that people end up behind the eight-ball. I encourage people whose income may fluctuate, such as small business owners, freelancers, and gig workers, to find out what is their tax bracket. Then, each time they get paid, immediately send in an estimated payment. You multiply your tax rate multiplied by the amount you just got paid, Don’t forget to do the calculation for your Indiana tax rate, too. Send two payments, one to the United States Treasury and the other to the Indiana Department of Revenue. This procedure will keep you from spending money each time you get paid. That money no longer belongs to you. If you treat it like it’s still yours, you could quickly end up with no cash to pay both tax bills. There’s a reason why there are wings on a dollar bill. Don’t spend it. Send it when you earn it and avoid the headache of no money when it’s time to file your tax returns. Small business, freelance, and gig income can be notoriously unpredictable. One month it is great, while the next is terrible. Paying your estimated payments in this way will keep you out of harm’s way.
You face serious tax challenges as a self-employed individual, including the dreaded self-employment tax. That higher tax burden makes smart planning essential, and you can start that planning with the four tips listed above.
Owe Back Taxes and Need Tax Relief?
If you want a law firm that knows how to navigate the IRS maze, reach out to our firm, and we’ll schedule a confidential consultation to explain your options to resolve your tax problem permanently.