As a self-employed businessperson, the expenses of your business are generally deductible on your income tax return. This means they reduce the amount of income that is subject to tax. You can deduct most expenses incurred while running your business as long as you keep records and meet certain criteria.
If you want to know how much money you’ll be able to deduct from your income in order to lower the amount of personal taxes you’ll pay, it’s important to understand what types of expenses qualify for this deduction — and which don’t.
Record keeping
A business expense is any money you spend in your business to make a profit. Business expenses include things like buying new equipment, paying for labour, and marketing campaigns. To track them properly and file the right paperwork with the government, it’s important to keep good records of those expenses throughout the year.
You’ll be able to deduct costs from your taxable income when you file your taxes at the end of the year. This can save you money on taxes owed or potentially even result in a refund!
Keeping good records will help ensure that nothing is overlooked or forgotten along the way—especially if there are multiple people involved with handling finances (like employees). It also makes filing taxes easier because everything has been entered into an accounting program beforehand rather than having to enter them manually later on at tax time which takes time away from more important tasks such as running your business efficiently and day-to-day operations. Much more if you sign up for MTD for ITSA, wherein it digitally records your income and expenses.
Accelerate tax deductions
As a self-employed individual, you have more flexibility than most when it comes to managing your business expenses. One of the best ways to save money is by accelerating tax deductions—and the easiest way to do that is by using a business credit card.
Using a credit card is one of the easiest ways to keep track of business purchases and make sure they’re deductible. It’s also one of the easiest ways for you (and/or your accountant) to determine what you can deduct from your taxes at the end of each year, which will help lower both current and future tax bills.
But before we get into how exactly this works, let’s take a look at why accelerating tax deductions actually matters in the first place:
Health Insurance
The cost of health insurance is a business expense. This means that if you purchase health insurance for self employed, you can deduct its cost from your taxes. If you are self-employed and purchase your own plan, then you may be eligible to deduct the cost of your health insurance.
Use a business credit card
When you’re self-employed, it’s important to keep track of your business expenses. A business credit card can help you do this.
A business credit card is a special type of credit card that lets you make purchases on behalf of your company. Unlike personal cards, which are designed for individuals, a business card is designed specifically for small businesses and freelancers like yourself.
The best thing about these cards is that they help you keep track of what you spend money on by automatically categorizing each purchase into its own category on the bill (e.g., office supplies). This helps ensure that tax time goes smoothly because everything will be categorized correctly when filing your taxes at the end of the year! You’ll also get faster reimbursement from clients since they’ll see all their purchases in one place when billing them instead of having to find every receipt individually online later down the road.
Keep accurate records of your mileage
The first step in managing your business expenses is to keep accurate records. It’s important to keep track of all the mileage you drive, whether it’s for work or just running errands.
In order to get the most money back from your tax return, it’s crucial that you’re able to prove how much mileage you actually drove as part of your self-employment activities. You may also be eligible for a tax deduction based on vehicle maintenance costs and depreciation.
Deduct the cost of home office space
If you use a portion of your home exclusively for business, the IRS allows you to deduct the cost of that space as an office expense. This can include an entire room of your house or just part of a room, such as a desk in the corner or even just some shelves on which to put file folders. The key is that if you don’t use any other part of the dwelling for personal purposes (such as sleeping or watching TV), then only that specific area should be counted toward calculating your deduction.
The amount you’re allowed to deduct depends on how much square footage you have available for business purposes and how often it is used for work rather than living purposes—you can calculate this yourself by dividing total square footage by total hours worked each year at home (including commuting time to and from work). For example, if you have 1,200 square feet and work 2 days per week at home instead of going into an office building (total = 3 days), then each day would count as 50% business use:
Conclusion
This is a lot to take in, but the best thing you can do is to start small. If you’re a business owner and want to get started managing your expenses, there are many resources available online. Consider talking with other self-employed individuals who have been doing this for years and ask them what they do when it comes to keeping track of their tax deductions!
