Starting a business is a great idea in so many ways. Giving yourself the freedom to work whenever and wherever you want is priceless (figuratively speaking). Especially in the beginning, it essential to give yourself and your business the best chance to survive financially. An important piece of the puzzle? Tax breaks. There are tons of deductions and subtractions which were created specifically for small businesses. Do not miss out on these breaks when filing your 2018 tax return.
Simplified Employee Pension (SEP-IRA)
One of the biggest mistakes new business owners make is forgetting to create a retirement account. Giving up employer contributions to a retirement account is a big hit for some people. If you have not already done so, you must consider starting a SEP-IRA because:
- You need to save money for retirement, and you do not want the money to be stagnant. Make it work for you utilizing the stock market.
- The money you contribute is pre-tax and you can contribute up to 25% of your net income. The maximum contribution is $49,000. Keep in mind that the max one person can contribute to a traditional 401k is $18,500 for people under 50.
- You can decide what to contribute at the end of the year. If your business did well, contribute more and vice versa. This flexibility is key for many business owners.
Home Office Deduction
Now, before you get too excited, you should know that you must follow the law to the “T”, or you are in danger of an audit and penalties. This means you need to figure out a few things:
- The square footage of your home office space in proportion to the total square footage of your house. For example, if your house is 2000 sq. ft. and your office is 200 sq. ft., you can deduct 10% of:
- Mortgage interest
- Other expenses (see here)
- Do you use this space exclusively for business purposes? This does not mean you are only able to conduct business here. You can still go to meetings, Starbucks, or wherever else you occasionally conduct business. It means that, when you are conducting business at home, you use this space and space is not used for anything else.
Training Materials and Courses
If you sign up for classes at a college, online, or anywhere else, you can deduct the cost of tuition and essential materials. If you sign up for classes on Udemy or any other online learning platform, this is also deductible. Also commonly missed subscriptions to professional publications and magazines. These are important pieces when developing a business.
Completing an itemized tax return can be overwhelming. Tax laws are constantly evolving, and you are responsible for filing legally in-line with the current tax code. If you need help understanding the current tax law or your business is being audited, you need help. Elias Dsouza has been protecting people from the IRS for over 15 years.