If you are running your own business, you can save a lot of money on your taxes by allocating certain expenses to your business, thereby reducing your personal taxes. These expenses are reported on IRS Form 1040 and Schedule C.
Examples of Write-Offs
* Home office space – You can’t claim your entire house as a deduction, but if you have a specific room or area of the house that is a home office, you can claim that space as a tax write-off. Just calculate the percentage of the square footage in your home that your office space takes up and divide your monthly rent or mortgage by that amount.
* Social security taxes, health insurance premiums, and retirement plans – You can deduct 50 percent of your social security taxes paid on income from your business; your health insurance is partially tax deductible; and you may also qualify for tax breaks depending on your retirement plan.
* Internet and telephone – If an internet connection is required for business operation, you can deduct it on your Schedule C. You can’t deduct your primary telephone line, but if you have additional lines specifically for business, they can be deducted.
* Filing fees – In most states, you have to pay a filing fee to maintain your corporate or business license. These fees can also be deducted.
* Office supplies – Paper, ink, toners, etc. can be deducted.
* Computers, printers and scanners – As long as the digital equipment is used primarily for business, you can deduct it.
* Domain, hosting, shopping cart, etc. – Any expense that you incur as a result of maintaining your website can be deducted.
* Meals – You can deduct 50 percent of your business meals. A business meal is a meal you have with one or more persons who are in some way related to your business.
Best Practices for Recording Tax Write-Offs
Save all your receipts. If they are not self-explanatory, make notes on the back of the receipt so that when tax time arrives, it is clear what category the expense was in.
If you are deducting a meal, make sure you note who the meal was with and the business purpose.
In general, if the expenses that you claim are ordinary, you won’t raise any questions by the IRS. On the other hand, if you attempt to deduct things that generally aren’t considered business expenses, you risk getting audited.
If you keep good records and keep abreast on what your write-offs are, you can greatly reduce the amount of personal taxes you need to pay at the end of the year.
Of course, once your business grows to the point that its income and expenses should be kept separately from your own records; you will consult a lawyer and accountant to help you set up your company and its financial records.
