What Deductions Are Available For Entrepreneurs This Tax Season?
It’s not too early to start thinking about taxes! As entrepreneurs, your success is closely associated with your resources. By getting additional deductions, you can stretch your budget and resources further than you thought possible. As an entrepreneur, these deductions may be available to you.
Did you know the tax codes allows for a full dollar-for-dollar tax deduction, up to self-employed income, for people who are self-employed? The deduction (which is taken on page 1 line 29 of Form 1040) reduces your total income by 100% of the amount you pay for health insurance premiums.
Being self-employed usually means a lot of travelling to prospective clients’ places of business. There are two methods that can be used in deducting car expenses. You may use either your actual car expenses, which allows you to deduct a percent of your actual car expenses that are used for business, or a mileage rate based discount.
Miles driven for business purposes outside of your normal commute are deductible at 57.5 cents (for 2015 tax year) per mile. The IRS has strict requirements on keeping track of your mileage. In order to deduct your mileage you must keep a log that includes the amount of mileage driven for a trip, date of the trip, place you drove, and the business purpose. Mile IQ, which is available in the Apple app store, is a great app to help track your business/personal mileage.
If you haven’t tracked your mileage in 2015, do start in 2016 and keep your receipts for all car expenses. This way you can determine which is more advantageous for you when you sit down to prepare your taxes for 2016.
Meals & Entertainment
As an entrepreneur, taking clients out for a meal or some form of entertainment is almost a must. A lot of deals get done over meals and on the golf course. The IRS allows for a 50% deduction of meals and entertainment with a client. For entertainment you must be able to prove that you or an employee was present with the client. The IRS also requires you to keep a log or receipts for any meals and entertainment expenses including the location, client’s name, individuals’ names who attended, date, and a brief explanation of the business discussion or activity.
Since most of us keep our meetings organized in some type of calendar or agenda, this should be easy to track and to maintain.
Entrepreneurs are often focused on the needs of the business, and not on their own life. Saving for retirement, even if just starting out, is very important and can be a tax benefit now. A self-employed individual retirement account (SEP-IRA) is a special type of IRA for the self-employed. Along with a great way to plan for retirement, a SEP-IRA allows for a dollar-for-dollar deduction of 25% of your income or $53,000, whichever is less, for the years 2015 and 2016. However, your contribution may be limited depending on your income so it is important to consult with a tax advisor before making contributions.
We hope these deductions will help keep more money in your pocket to help grow your business. To learn more about the deductions you are eligible for, please consult a tax specialist.
If you have any ideas or ways to track expenses or deductions, please share it with us!