Writing off Business Expenses
Whenever you start a business or strike out as a freelancer, mastering the taxes and regulations so that you can write off business expenses is frequently as important as exercising good business practices.
The tax code may seem complicated, and it is, but part of its enormity actually favors small business owners and self-employed people. By learning about writing off business expenses at tax time, you can save money, and redirect valuable dollars toward stabilizing, operating, and expanding your operation.
Common Business Expenses to Write Off
The IRS maintains an extensive list of business expenses that are considered legitimate write offs. If you've ever been self-employed before formally creating your business, some will look familiar, while others are entirely unique to established enterprises that carry tax liabilities. If this is the first year of your business, first look at writing off start up costs.
The definition of these expenses is fairly generous, ranging from necessities like labor, travel, and salaries, to marketing and incorporation fees paid before your first days of operation. For freelancers, furniture and home office supplies are typical write offs.
Both official businesses and self-employed individuals can write off loosely-related liabilities. Dinners or room space for seminars with clients are eligible expenses. The same goes for short-term classes not offered by major education institutions, which self-employed workers frequently attend to stay connected to their professions.
If you're self-employed and don't have a legally incorporated business, there are still plenty of write-offs available. Supplies for your work, a home office, and even child care can be deducted from your total tax bill.
Today, many work directly with computers, and this means the machinery as well as expensive software products can be written off, as long as they serve a crucial business function. Don't forget to track and report travel too.
The IRS allows you to write off travel mileage up to a limit, essentially giving you a per diem rate off your taxes, just as a major employer would.
Organization is Key
Small business owners and self-employed freelancers alike should know one tip: documenting your expenses is critical. Keep careful records of all business expenses you intend to write off, usually for three to five years, to offer rebuttals to an IRS audit demanding proof of your costs. You should store receipts, bank statements, and salary stubs given to any employees.
Thanks to the ease of tracking your expenses electronically today, it doesn't hurt to designate a special checking account to your business transactions. Make purchases with a debit or credit card specifically assigned to this account.
The self-employed don't need to open official business accounts, but it doesn't hurt, if you can find one for low rates. Many small businesses already have accounts devoted only to their business, rather than personal uses. Using these accounts helps track potential write offs effortlessly.
With a superior knowledge of IRS business tax code and disciplined tracking of your business expenses, you're almost guaranteed to pare down your quarterly and annual tax liability.
As your business or self-employed venture grows, products and markets may change, but eligible business write-offs rarely do, allowing you the same tax breaks for as long as your business exists.
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