Maximize Your Tax Savings: Business Deductions Every Self-Employed Person Should Know About

If you own your own business or have a side hustle like Uber, Lyft, selling lemonade, make sure to keep track of your income and expenses.

Let’s say you generated $100,000 selling your own lemonade. This is before paying for employees or lemons or anything, so your revenue is $100,000 but all the expenses that went into your business to generate your sales can be deducted on your tax return to lower your taxable income.

So let’s say you paid

• $10,000 paid in employee wages

• $10,000 paid in lemons and supplies

• $10,000 paid in rent because side walks can be expensive

• $10,000 paid in legal expenses to set up your company and pay sales tax

Total expenses: $40,000

Thus, your net profit after expenses is $100,000-$40,000=$60,000. Thus, you had $40,000 in business tax deductions. If your tax rate was 24%, you just saved $40,000*.24=$9600 in taxes.

These deductions would be reported on Schedule C if you are a single member LLC or single owner of the business. If your expenses aren’t in these categories: include them in the other category:

You can either use accounting software like Quickbooks or manually keep up with expenses through like google sheets if its not too complicated.

Referral link: https://quickbooks.grsm.io/bailizRF Quickbooks Accounting software for keeping track of expenses: Referral link offers 55% off the monthly subscription price of QuickBooks for the first 3 months of service.

Free Google sheets template: https://docs.google.com/spreadsheets/d/1_OvUPgfEDZ5BE2_CmNtNxzhnKaB563CBod6v7k8A7pE/copy

I suggest going through your bank statements, credit cards, and receipts to make sure you properly include all business expenses. The more expenses you have, the less tax you will owe. One of the reasons you may consider having a separate business bank account and separate credit card from your personal is that you can more easily keep track of what is personal vs business expenses. I would suggest recording your expenses throughout the year, maybe once a week rather than waiting until tax time. Make sure to keep records of your deductions in case the IRS asks for more information after you file your tax return.

Moreover, you can even deduct miles you drive for business: Click on the video here to learn how to track business miles easily for free to claim more deductions:

One other thing to know is that business meals can also be deductible.

For tax years 2021 and 2022, restaurant business meals are 100% deductible (vs the normal 50%). For example, if you discuss business with a potential client at a restaurant, you can claim the business meal as a tax deduction. I suggest keeping the receipt and writing down what business you discussed, so you have adequate records. Moreover, the meal must be reasonable. A reasonable business expense must be ordinary and necessary, so do not go overly extravagant or it will not be considered a deductible business expense.

I have given only a basic overview, but taxes can be really complicated so make sure to talk to your tax advisor if you need help.

You may even consider filing an extension so that you have more time to find all your business expenses and deductions. Just remember that you will still have to make an estimated tax payment but you could pay less in taxes if you find more deductions. You can also amend your past tax return (for the past 3 years) to correct any mistakes or claim any deductions you forgot to include so that you could possibly get a tax refund.

If you can purchase things before year end, you can claim the tax deduction now. For example, if you had a $5000 purchase of lemons on Jan 2, why not buy it Dec 31 so that you can reduce your tax liability now.

Home business deduction: https://www.keepertax.com/posts/should-i-use-the-simplified-home-office-deduction

And if you are running out of time, you can consider filing an extension. You still have to make an estimated tax payment by the normal deadline of April 15 but once you have finalized your taxes and recorded all your business expenses including any you might have forgotten about, you can submit your tax return by the extended deadline which is usually October 15. Thus, even if you made an estimated tax payment of let’s say $15,000 on April 15th. But you waited until Oct 15 by filing an extension and this allowed you some time to find some extra deductions you had forgotten about, thus you were able to lower your tax liability and get a refund of some of your $15,000 you already made in estimated tax payments.

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