There are a lot of reasons to start your own business and if you were to ask each business owner why they took the chance you would get a very personal answer. Probably far down the list of reasons would be the host of tax advantages for the self employed. Let’s take a look at a few
At the end of your first year of business you may find that you’re missing something that you really were hoping to have: profit. In order to get your business off the ground you had to buy equipment, rent a commercial space, possibly use the services of an attorney to sign franchising paperwork and use a business registration service to get the right paperwork on file with your state.
All of these expenses go against your revenue and if you’re like many business startups, you didn’t make enough to cover those expenses. You can write off those business losses.
Speaking of Equipment
Did you know that all of that equipment you purchased is a tax write off? Instead of waiting for multiple years to take depreciation deductions, take the deduction all at once in the first year. Of course, you don’t get the best of both worlds and there is a limit to the amount of depreciation you can take. The IRS keeps a close eye on the returns of small business owners so when in doubt, get help!
Wouldn’t it be nice if you could write off the complete cost of your health insurance costs? If you’re self-employed and don’t have a spouse working for a company that provides health insurance, your costs are substantial. The IRS allows you to write off a portion of those expenses just as you would other health insurance costs once they reach a certain percentage.
If you work from your home, you can write off many of the expenses that come with a home office. Office furniture, heat and air conditioning, repairs to the space, and many others are eligible. Although this can be a big source for deductions, this a perennial favorite reason for the IRS to request to audit business owners’ books so be sure that anything you claim in home office deductions are backed up with documentation.
These four deductions represent only a few of the many other deductions available to small business owners. Although they won’t make up for the long work hours and the relative small amount of income that comes with a brand new business startup, these and other deductions can help soften what can sometimes be a tough financial year. The good news? Year two will be much better!