In recent years, the economy has shifted rapidly. A growing number of companies are downsizing and hiring subcontractors for dedicated projects. This means more individuals are becoming self-employed and filling the needs many companies have because of their downsized workforce.
Being self-employed is certainly a change in lifestyle. Instead of working for a boss, you are on your own, setting your own hours, making your own schedule, and enjoying the freedom that comes with it. Another adjustment is with your taxes. Though it can seem overwhelming at first to pay your own taxes, there are actually several tax advantages self-employed people enjoy.
Here are five areas where you can save on taxes with your own business:
Home Office
If you have a home office that you use regularly and exclusively for business, this is deductible. The IRS offers two options for the home office deduction. The traditional way is to take the square feet in your home dedicated to your office and divide it by the total number of square feet in the home. Whatever percentage of your home is used for business, you can deduct this same percentage of your other qualifying household expenses.
Recently, the IRS introduced the simplified method, which is much easier. With this method, all you need to do is take the number of square feet of your home office and multiply by $5, and that is your deduction. For example, if your office is 250 square feet, multiply that by $5 and your deduction is $1250. The maximum square footage allowed under the simplified method is 300, so if you have a larger home office, you might be better off using the traditional method.
Phone and Internet
If you have landline phone lines, fax lines, mobile phones and Internet service you use in your business, this can be deducted. If these services are used exclusively in your business, you can deduct 100% of your bill. If you use them partially for business and partially for personal use, deduct only the percentage of the service used for your business.
Mileage
If you have a vehicle you use in your business, you are allowed to deduct vehicle maintenance expenses, or a flat business mileage rate. For the tax year 2016, you are allowed to deduct 54 cents per mile for each mile driven for your business. This is down 3.5 cents from the 2015 rate of 57.5 cents per mile to reflect the drop in fuel prices.
Travel Expenses
If you do any travel that is related to your business, you can deduct 100% of the cost of transportation, hotel, and any business conferences/seminars you attend. You are also allowed to deduct 50 % of your meals and entertainment while traveling for business.
Subscriptions and Software
If you subscribe to any trade publications related to the industry you are in, the cost of the subscriptions is deductible. You may also be using certain computer software to help streamline and simplify your operations. These software subscriptions are deductible as well.
There are numerous additional tax benefits for those who are self-employed. To ensure you are taking full advantage of all the deductions available to you, it is best to speak with a local tax professional. A CPA can help organize your taxes, accounting and bookkeeping tasks, so you can focus on running your business. And remember, the cost of your accountant is deductible as well.