Properly managing business expenses is not just good business, it’s also a good income strategy as an independent professional.
As a business of one, you will incur fixed costs that cannot be billed back to clients. You’ll also need to handle expenses such as health care, retirement funds, and other benefits typically provided by an employer. Each of these fixed or variable costs can be a drain on your income, but managing them well can lead to opportunities to write off expenses—putting more money back in your pocket.
While there are many tax deductions available to independents, here are five categories of common expenses you should consider tracking. In each of these areas, keep detailed records or receipts (either through a firm such as MBO Partners or via your own accounting strategy) to ensure proper deduction at the end of the year.
1. Marketing and Advertising
Having a marketing strategy in place for your business is a big part of landing new clients and maintaining steady growth. While there are many marketing activities that can be done for free such as blogging or social networking, other activities require a financial investment of some sort. Independents can generally deduct advertising and promotional expenses directly related to business activities such as paying for an ad, purchasing business cards, or hiring someone to create your personal website.
2. Office Equipment and Space
If you work from home and have a workspace exclusively dedicated to your business, you can deduct this as a home office expense. There are a few ways to do this—a simplified method based on square footage, or the regular method that requires additional calculations.
You can also deduct office equipment related to your business such as your computer or laptop, and supplies like pens, printer ink, paper, and software.
3. Benefits: Insurance and Retirement
So long as you aren’t eligible through a spouses’ plan, you can deduct your medical, dental and qualified long-term care insurance premiums both for yourself as well as any dependents.
Retirement is another great tax advantage you have access to as an independent and there are many different self-employed retirement options. Tax-deductible plans include: a Solo 401(k), SIMPLE IRA, and SEP IRA.
Educational expenses are tax deductible so long as they are related to maintaining or improving your skills for your business, or are required by law to maintain a specific license, status, or job. Taking an online course, pursuing a certification, or enrolling in a local college class with the intent to do your job better are all ways to utilize this deduction.
Non-deductible education expenses include education required to meet the minimum educational requirement to qualify you in your trade or business (obtaining a specific license if you don’t already have it), or education that will qualify you for a new trade or business.
5. Business Development
There are a series of miscellaneous costs that are deductible, many of which can be attributed to growing your business. For example, if you use your car for business, you can deduct the dollar value of business miles traveled. Just be sure to keep detailed records for accuracy. Likewise, if your business duties explicitly require travel, you can deduct 100 percent of expenses such as airfare, lodging, and cabs.
Tax deductions are a big perk to independence, but can get complicated quickly. If you have questions about how to make the most of your eligible deductions, we’re here to help.
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.
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