For the self-employed person, our beloved tax code is a cornucopia of tax deductions.
Last week’s post revealed 5 great tax deductions. In case you missed it, not to worry – here’s the link – https://www.selfemployedtaxdeductionstoday.com/5-fabulous-small-business-tax-deductions/
And while were on the subject of tax deductions, here’s five more ways to put more money in your bank account instead of Uncle Sam’s.
1. Medical reimbursement plan.
Here’s a way to treat all your medical expenses as a business deduction, including those not covered by insurance. If you are a sole proprietor and you currently have no employees, you can put your spouse on the payroll and then reimburse him/her for all out-of-pocket medical expenses. End result: your business gets a deduction and the reimbursement is tax-free to your spouse/employee. Other business entities can use this strategy, too, but the specifics vary from entity to entity, so be sure to consult with a tax pro to sort out the best way to do this for your particular situation.
2. Hire your children.
Do your kids do chores around the house? Then they are probably old enough to be a bona fide employee of your business. There are plenty of tasks they can perform for your business, from simple clerical work to maintaining your website. You pay them a fair wage in a true arm’s length transaction, and their compensation will probably be low enough that the income is tax-free to them and a legitimate tax deduction for you.
3. Good-bye depreciation. Hello Section 179.
Congress has done well to greatly increase the amount of business equipment you can write off 100% in the year of purchase. Forget those crazy depreciation rules. The Section 179 deduction rocks! At the time of this writing, you can deduct the entire purchase price of up to $500,000 of most business equipment, such as computers, printers and office furniture. Of course, every great deduction has a few tricky rules, so make sure you read the fine print to ensure you qualify for this one.
4. Plan your trips to maximize travel deductions.
If you plan your out-of-town excursions right, you can mix business with pleasure and still get a deduction for your transportation, lodging and meal expenses. To get the most out of this strategy, the key is that the trip be primarily for business purposes. Be sure to document your time spent on business activities throughout the trip. For example, on domestic trips, if more than 50% of your days are spent primarily on business, then 100% of your transportation costs are deductible, even though you engage in recreational activities during the trip.
5. Deduct your commuting mileage.
This deduction goes hand in hand with the home office deduction. For this to work, you also must have a second work location outside of your home. Here’s the deal: normally, commuting mileage is non-deductible. But mileage between two business locations is deductible. So if you start your day by working in your home office, and you then drive from your home office to your second office or other work location, you’ve just converted non-deductible commuting miles into bona fide business miles. Sweet.
There you have it. Five more fabulous tax deductions for your small business or self-employment endeavors.