If you’re self-employed, there are many deductions available to you that the average person without a business does not have.
If you don’t own a small business, you might consider the many financial benefits of starting one. Simply making an effort to earn income from a hobby can open up a lot of tax advantages even if you keep a regular full-time job.
Consider these tax deductions:
- Home office. Whatever percentage of your home is used for business can be used in deductions from your income. For example, if your rent is $1,000 / month, and you use 30% of your square footage for business, you can deduct $3,600 from your income (12 x $300).
- The catch is that the space must be used exclusively for business. So, let’s say if your parents sleep in your office on Christmas Eve, you lose out on the entire deduction. The IRS is a real stickler on the home office deduction.
- Your computer can be deducted as well, also based on percentage. If you use your computer 50% of the time for business, you can deduct 50% of the cost.
- You can also deduct the same percentage of your utilities. That includes heat, electricity, Internet, and more.
- Even a portion of repairs to your house can be taken as a deduction in the same percentage. It must be a repair that affects the whole house, like a new roof, air conditioning system, or flooring.
- Also, any money you spend on renovating your home office is deductible from your income.
- You can even deduct your child’s allowance by paying them to do age-appropriate tasks around the office like sweeping, dusting, and filing.
- Travel expenses. You can deduct your business-related travel expenses, like hotel and airfare. You can deduct 50% of the cost of your meals on your business trips and even business meals in your home town.
- It’s vital to keep a journal/minutes so you can prove that your travel was business related.
- You could even have a working vacation and take the family along. You won’t be able to deduct their travel or food costs, but you can still deduct the cost of your hotel room.
- If you are also vacationing, be sure that you’re spending at least part of the time meeting with clients, going on trainings, or other business-related tasks.
- Automobile. If your vehicle is used exclusively for business purposes, you can typically deduct all your vehicle expenses. In most cases, your vehicle will be used for both business and personal use, so keep a log of your mileage. Designating each trip as personal or business.
- In general, all travel between business locations is deductible. So, travel from your home office to the office supply store would be deductible. Travel from one client location to another would be tax deductible.
- However, the miles you drive to your office from your home are not tax deductible.
- These deductions can be used by mileage or business use percentage. If you use your car for business purposes 30% of the time, by mileage, you can deduct 30% of your vehicle expenses. Or, you can multiply your business miles by that year’s designated amount from the IRS.
- Use whichever method provides the most significant deduction. Typically, less expensive cars would use the mileage method. For more expensive vehicles, the percentage method provides a larger deduction. Try it both ways.
Having a small business on the side can bring many beneficial deductions. Just a few are mentioned in this article. With a little planning, a significant portion of your rent or mortgage, utilities, automobile, and travel expenses can be deducted. This can easily save you thousands of dollars every year.
Maybe now is the time to turn that hobby into a business. You might make some money and have a lot of fun at the same time. Consider it!
