You Could Be Missing Out on Thousands of Dollars in Tax Deductions (and Here’s Why)
If you work for yourself or have any part-time or full-time side business, you could be missing out on thousands of dollars if you don’t know what you can deduct on your taxes.
Deduct Meals with Friends Only When There Is a Clear Business Purpose
When most of your friends work in the same industry and are also freelancers or independently employed, it’s easy to think you can deduct every meal you have with them. You can’t deduct every meal, but you can deduct some. Have a clear business purpose and write it in your calendar for the meeting. An example is meeting for lunch to discuss a project you’re working on or job leads. Meals are deducted at a 50% rate, and alcohol isn’t tax-deductible.
Possibly Deduct Expenses for Personal & Food Blogs
The IRS has strict rules about calling something a business just to take a tax write-off. Thus, it’s very important you keep records of expenses for any venture that you are starting to make a profit. For instance, let’s say you are starting a food blog to make a profit. You should keep records of ingredients, and preparation costs and any other expense related to the blog. You can deduct items like new kitchen shoes expenses for you, but you can’t deduct more than what the business earns.
Deduct Utilities
Especially for new business owners or the newly self-employed, utilities are an often-overlooked deduction. The portion of your cellphone, internet and cable bills used for work can be deducted. For example, if half your calls from a phone are work calls, you can deduct 50% of the bill.
Deduct Mileage
You can’t deduct mileage expenses to get to work if you have an office outside of your home, but you can deduct mileage to go to meetings from either your office or your home. If you’re taking public transit, you can deduct the cost of individual trips or the percentage of monthly or weekly transit passes that you use for work.
Don’t Deduct Most Clothing
When you have to go to galas and such for networking for your job, it may seem like this is a work expense. However, the IRS generally doesn’t see it that way. Suits and dresses generally aren’t considered deductible clothing. Deductible clothing is a uniform you could only wear at work, such as a police officer’s uniform, chef coats or surgical scrubs.
Deduct Business Expenses but Don’t Create Them
Often, new businesses pay excessive legal costs to set up their business. For instance, a dog groomer may spend $20,000 to set up an S corp and issue stock certificates when it isn’t necessary. Before anyone tells you an expense like this is necessary, talk to an advisor you trust or get a second opinion from a financial professional. Business expenses you should deduct include paying an employee and issuing a 1099 if you paid them at least $600. CPA and legal fees are also generally tax deductible. Expenses you pay to a business for business expenses such as website building are tax deductible without having to create a 1099 form.
Deduct Business Losses
Especially in the first year or two of setting up a new business, there are times your business may cost more than the profit you make. That’s OK. You can deduct your investment, provided it meets other rules for deductions.
Starting a new business is hard, but your taxes don’t have to be. Make sure you save receipts and bank statements. Set up separate accounts and credit cards when possible for easy expense tracking. When figuring out what to deduct, don’t do it in haste. Go through all your expenses and see what was and wasn’t for your business.
