While self-employment provides autonomy in your life, there are certain tax benefits that come from operating a business.
As a business owner, you are eligible to deduct certain expenses incurred for the purpose of earning income.
Working from home: Home-office deduction is something that business owners are normally eligible for. This deduction is available whether you rent or own a home and use a part of your home to run a business. Two methods are available:
a. Simplified option: Deduction of $5 per sq ft used for business. The amount must be claimed on Schedule A.
b. Regular method: Based on the percentage of business conducted at home. Records of expenses must be maintained. Expenses related to your home such as mortgage interest, insurance, utilities, repairs, and depreciation are allowed.
Whether you choose the regular method or simplified method, you must meet two tests. You must use the home as your principal place of business and must use it regularly and exclusively.
Travel and transportation: The following expenses are deductible when made for the purpose of business.
Auto expenses: Includes, but not limited to gas, repairs, maintenance, insurance, and loan interests.
Boarding and Lodging: Accommodation expenses incurred to earn income.
Other transportation: Expenses on other types of travel for business.
Meals and entertainment: 50% of the amount spent, however, the Covid-19 relief bill signed into a law that allows 100% deduction for tax years 2021 and 2022 if the food and beverage are ordered from a restaurant.
Trade association meetings and dues: Expenses incurred for the purpose of earning business income such as attendance at meetings, paying for courses related to your business, and trade association membership fees.
Other expenses: Any amounts spent on business purposes such as advertising, legal and accounting fees, insurance, wages, website development, utilities, and office supplies are deductible. There are many other expenses that you may incur during the course of business. It is essential to note everything and discuss with your accountant what can be claimed as business expenses.
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