The Ins And Outs of Self-Employment Tax Deductions
Greenblatt Financial has assisted the Wisconsin and Illinois communities from their hometown in Delavan, Wisconsin for decades. Filing taxes can be one of the most burdensome tasks for small business owners. Preparing your small business for tax season may not be at the top of the list of the most exciting things to do, but filing accurate tax returns is non-negotiable in business. Your responsibility is to account for the relevant financial transactions in your business.
Here are some tips to get your small business ready for the tax season to reduce the stress and headaches of the tax season burden.
Working From Home?
Working from your home office can help maximize your tax write-offs. If you use your home office exclusively for business purposes and not any other activities, you might be eligible to take the home office deduction. To be eligible, the space must meet the following criteria:
- You must use it exclusively for your business
- You must not have a regular job
- The space needs to be a specific size
- The room needs to be your primary place of business
- It can’t be an office in someone else’s house or apartment
Individuals who qualify for the home office deduction can deduct expenses like real estate taxes, home-owned mortgage interest and rent, utilities, and insurance. It’s also possible to deduct the cost of repairs and paint your home office if used exclusively for this purpose. A new law was passed that will make 100% of business meals deductible as long as you are eating at a restaurant. Keep this in mind if you file your taxes in 2022.
Did Someone Say a Little Nepotism?
There are many great things about having your kids home on break. They might help out around the house, visit with old friends they don’t see during the school year, or have time to relax and watch their favorite TV show. But have you considered how they can help out around the office? Sole proprietors who hire their kids to run deliveries, clean the office, answer phones or enter data can deduct those wages on Schedule C, as long as the wages are reasonable for the type of work performed. Wages paid to children are exempt from Social Security and Medicare taxes if they are under 18 and not subject to federal unemployment tax if they are under 21. Hiring your child may also result in them paying less in income taxes on income earned from this type of work, reducing your family’s overall tax bill.
Long Term Planning
A retirement plan could help you save for the future and on your tax bill. The most common is a Simplified Employee Pension Plan (SEP) which can be as much as 25% of your net earnings from self-employment or $58,000 for 2020 ($61,000 for 2021) up to the extended October 15th tax deadline for taxes and lower your taxes for 2020. The IRA contribution cap for 2020 is $6,000 ($7,000 if 50+) and the deadline to make 2019 IRA contributions is April 18th. Call Greenblatt Financial Today for more information on the Ins and Outs of Financial Planning. 262.275.2526.
There are many items to consider when looking for ways to not only deduct the cost of driving to and from work, even if you are self-employed, but Greenblatt Financial will advise you on your company’s vehicle or fleet of vehicles. For example, you can deduct the cost of driving to and from work. If you’re self-employed and using your car to visit a client, meet with someone, or work from another location. Although employees of a regular nine-to-five job cannot deduct the cost of driving to and from work, you may be able to if:
- You’re self-employed and using your car to visit a client, meet with someone, or go to work from another location.
- You can claim 56 cents per mile for 2021, plus the cost of parking and any tolls you paid. Be sure to track your business mileage to have substantiation for your mileage deduction.
Traveling for Business
If you are traveling to the US for business, you can deduct 100% of your travel costs. And if you’re staying at a hotel during your trip, you can also expense that and your meals. But there is more good news, under a new law passed on December 27th, 2020, starting from tax year 2021 (the taxes you file in 2022), 100% of your business meals will be deductible, regardless of whether a restaurant provides them — so long as they are food or beverages.
Schedule your appointment with our tax experts today. We will help you identify ways to reduce your taxes, minimizing the amount of taxes you have to pay and getting you the tax savings you deserve.
Call Greenblatt Financial Today 262.275.2526. Email: [email protected]. Greenblatt Financial Services, 510 East Washington Street, Delavan, Wisconsin 53115.