You've just stepped into the world of entrepreneurship. Whether you've opened your own coffee shop, begun freelancing your graphic design skills, or driving for a car-sharing company, you have a variety of tax implications to consider - and some of them can slim down your tax bill.
Here are a few of the ins and outs of filing taxes as a self-employed individual.
Working from the comfort of your own home can help you maximize your write-offs.
If you regularly use a home office for the purpose of your business, you can claim tax deductions on that space.
Expenses that may be deducted include a portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, and repairs based on the square footage of your home used for your business.
Kids are out on holiday or summer vacation? Hire them!
Sole proprietors who hire their kids to run deliveries, clean the office, answer phones, or enter data can deduct their wages on Schedule C, as long as the compensation is reasonable for the type of work performed. Wages paid to the children are exempt from Social Security and Medicare taxes if they are under 18 and are not subject to federal unemployment tax if they are under 21.
It's also likely that your child will not owe income taxes on these wages, which lowers the family's tax bill considerably.
Save for the future and on your tax bill, all at once.
Opening a retirement plan can help lower your taxable income. The most common is a Simplified Employee Pension Plan (SEP). You can put in up to 25 percent of your net earnings from self-employment or $53,000 for 2016 and your contributions are deductible as a business expense.
Compare that to the $5,500 cap on IRA contributions ($6,500 if you are 50 or old at year end) for 2016. A SEP can be established for 2016 as late as April 18, 2017, or if you filed an extension, October 15, 2017.
Mileage is Money.
While employees of a regular nine-to-five job cannot deduct the cost of driving to and from work, you certainly can if you're driving to see a client, heading to a meeting, or going to work from another location.
You can claim 54 cents per mile for 2016, plus the cost of parking and any tolls you paid. Be sure to track your business mileage so that you have substantiation for your mileage deduction.
Make the most of your business trips.
Tip for the traveling pros: If you're flying to another U.S. city primarily for business you can deduct 100 percent.
Remember that while you are travelling, you can also expense your hotel or lodging and 50 percent of your meals, though this can only be deducted for the days you're spending on business.
While dealing with your business and personal life can be busy sometimes, knowing these simple tips can help you easily find business deductions that will lower your tax bite and help you save money for your business.
For more tips and tricks on the Self-Employment tax rules, visit the TurboTax Self-Employment blog.