11 Everyday Expenses You Could Be Writing Off If You Owned Your Own Business

Always wanted to start your own business but not sure you can afford to start one? Stop worrying and get started. Starting your own business, whether on the side or full time, is a great way to turn costs that you would incur anyway into tax-deductible expenses.

It’s possible to reduce your taxable income all the while increasing your financial independence. And as a bonus you can free yourself from having to work for someone else. No more worrying about lay-offs or promotions you deserve but don’t get or even getting to the office on time. You really can have the life you want and make more money than you do right now.

You’re probably not even aware of all the expenses small business owners are allowed to write off. There are so many daily expenses that the average man incurs. The difference between being an employee and an employer is that the employer can deduct those expenses from his income!
I’m sure you know that small business owners that work from home can deduct part of their mortgage or rent and utilities from their income. Think about it…you are already paying the bank or landlord money every month, why not write some of that money off and reduce your taxable income? Only business owners can do that.  To determine how much space you can deduct measure the work area and divide it by the total square footage of your home. That percentage is the fraction of your mortgage, rent, electric, insurance, water, and other home related bills you can deduct from your income.

Home based businesses require the help of an automobile from time to time. They take us from one conference to the next and to the post office to ship out customer’s purchases. If you use your car for businesses purposes you can deduct some of the costs associated with keeping your vehicle road ready. There are two ways to figure out how much you can deduct in this category: the standard mileage rate method or the actual expense method.

The Standard Mileage Rate method. The standard mileage rate is generally easier to use and doesn’t require you to keep as many records. For 2012 you can deduct 55.5 cents per each business mile driven. In 2013 the rate will increase to 56.6 centers per mile.

Actual Expense method. Using the actual cost method may result in a larger deduction, particularly with a relatively expensive car. Determine any and all business related expenses to operate the car. Include gas, oil, repairs, tires, insurance, registration fees, etc. attributable to business.

If you use your automobile for business and pleasure (which will be 99% of us) you may only deduct those expenses related to your business. You will have to track those expenses over the course of the year (I do it, it’s not so bad. You just have to save your receipts.)

One of the biggest concerns about starting up a business is the cost involved in getting things up and running. The great thing is the IRS allows you to deduct all or part of your start up and organizational costs to help offset this expense.

The IRS allows you to deduct up to $5,000 of your qualifying start-up costs the first year as long as your expenses are $50,000 or under. After that amount, the amount you can deduct starts to phase-out.

Then for the next 180 months after your business gets up and running they allow you to deduct in equal installments the remaining costs. The government wants you to start your own business and they are willing to help you out if you do. Now you have one less excuse!

Furthermore if you take out a loan for any business related expenses you can deduct some of that expense too! When you take out a business loan or charge a business expense any interest and carrying charges you incur can be deducted. If you make a business related purchase on your company’s credit card and incur interest, you can deduct that amount from your taxable income at the end of the year.

Most businesses need some outside help, at least from time to time. Rarely does a business owner do the marketing, product research and book keeping. Do not fear expenses for professional services you would use in your business though because you can write them off! You can deduct any fees you pay to accountants, lawyers, book keepers, or consultants for their professional services in the year you incur their services. In addition you can claim deductions for business related books, magazine subscriptions, safety deposit boxes and bank fees.

You can also deduct any ongoing education classes you need to stay current in your industry or field! Expenses you can deduct include classes, seminars, workshops, or conferences. Just think the government allows you to deduct costs that actually make you better able to run your own business! The only stipulation is that the education must be related to your current line of work. In other words, if you are a graphic designer you can’t your company to pay for you to take cooking lessons.

We all need health insurance, whether we’re self-employed or not. But being the owner of your own company allows you to deduct all of your health, dental and long-term care insurance premiums. What’s more, you can also deduct premiums that you paid to provide coverage for your spouse and dependents.

Health insurance premiums aren’t the only kind of insurance premiums you can deduct either. You can also deduct:

-Liability and malpractice insurance

-Key person life insurance

-Property Damage protection such as fire, theft or flood

-Workmen’s compensation

-Automotive insurance

Communication for a small business owner is a must. You can deduct the cost of having a cell phone for your business. The key here is to only deduct the expenses that are directly related to your business. If you have only one phone, you shouldn’t deduct your total basic monthly charges. The IRS says you would likely incur that cost whether you worked form home or not. Instead deduct costs that specifically relate to your business. If you have a second phone line that you use exclusively for business deduct 100% of that cost.

Furthermore, any expenses you incur advertising your goods and services can be deducted to reduce your taxable income! Advertising expenses such as business cards, temporary signage, Yellow Page ads, newspaper ads, TV and radio ads including any production expenses can be claimed as deductions. You can also deduct promotional and publicity costs that create goodwill towards your business. You can sponsor a local event like a celebrity golf tournament or a youth baseball team.

Last but not least, and my personal favorite of all tax write offs, is paying your minor child to work at your business. Putting your children to work in your business, even if only for the summer, is one of the most underutilized tax saving strategies. They can earn up to $5,950 without having to pay federal income taxes on it.

If you pay someone who isn’t a relative to work for you, they take that tax free income home with them. Hire your child and you keep that money in the family. Plus you don’t have to withhold any income or payroll taxes on your child’s wages.

You can then set up an IRA for your child and contribute the money they earn into the account. It’s a great way to get your child to save for college or retirement or a down payment on their first home. Beyond the tax savings, you’ll be teaching your kids a work ethic, money-management skills and a concept of entrepreneurship.

Of course there are many more deductions small businesses can claim to reduce their taxable earnings. Expenses that the average man incurs whether or not they work for themselves or for someone else. So why not be your own boss, live the kind of life you’ve always dreamed, make more money than you ever have all while reducing your taxable income! My advice is to seek the counsel of a professional when considering any deductions. And why not, any fees you pay to an accountant are tax deductible!

Good luck!

Ethan Warrick


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