A write-off, or a tax deduction, can be quite useful for taxpayers of all kinds. It's particularly handy for those who are self-employed, including small business owners. How does a write-off work? Let's go over what it is, as well as some tips on how to lower your taxable income.
A write-off is also called a tax deduction. This lowers the amount of taxable income you have during tax time. Basically, let's say you made $75,000 last year and have $15,000 in write-offs. That means your taxable income for the year would be $60,000. The tax code allows self-employed workers to write off various expenses related to their business. This can include things like business miles with the mileage deduction, usual business expenses, the cost of using your home as an office and much, much more. W-2 workers can often qualify for various write-offs, especially if they itemize their return. Many people can lower their taxable income by writing off things like charitable donations, mortgage interest deduction and more. If you don't want to itemize, many W-2 employees can also use the standard deduction to lower their taxable income. The standard deduction varies based on your filing status and you can see what yours would be using this calculator.
If you're self-employed, the IRS lets you write off nearly any reasonable business expense. Just make sure these expenses are:
Some important write-offs every self-employed worker should know about include:
If you're self-employed, a freelancer or own your own business, you should be taking as many write-offs as you are entitled to. The more deductions you can take, the lower your taxable income will be and the less in taxes you'll have to pay. Here are a few tips on how to get the write-offs you deserve. First and foremost, keep track of all of your business expenses. As mentioned, you can deduct reasonable business costs but you have to know what they are. The IRS doesn't take your guesses or estimates, so have a way to know exactly what you're spending. Secondly, know what reporting requirements the IRS wants. For example, if you want to claim a mileage deduction, the IRS wants a mileage log. You don't have to send in your documentation with your returns but if you ever face an audit, you'll avoid countless headaches by having proper documentation. Finally, explore ways to make things easier for your record-keeping. A shoebox full of receipts and hand-written logs may have served you well but modern tools and apps can do the job just as well, if not better. Imagine not having to worry about these tedious‚ yet important‚ tasks and being able to just focus on your business. Even better, imagine not having to worry about your business at all but being confident you still have the information you need.
If you're filing a tax return as a sole proprietor, many of your write-offs will be claimed on Schedule C of your 1040. Be sure to know the rules about what deductions you're entitled to. Depending on the size and scale of your business, you may want to hire an accountant.
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