Self-employed individuals experience tons of expenses during their journey of earning a living. Still, the IRS allows them to write off most of these costs.
Some can write it off completely, while others can qualify for a percentage of the cost amount. Entrepreneurs, businessmen, and the IRS refer to this process as tax-deductions. Ordinary and necessary business-related costs are subject to a tax deduction.
The IRS specifies that to be eligible for such a tax deduction for your business or employment, it has to be a necessary expenditure without which your business cannot operate.
In fact, without spending such tax-deductible money, you cannot even think about starting a business.
For example, teaching supplies and textbooks would come under the category of tax-deductibles if you run a tutoring business.
However, if you purchase a pet hamster for the office, good luck convincing the IRS to pay for it.
Expenses that come under the tax-deductible categories include contract labor costs, equipment rentals, insurance, maintenance and repairs, printing expenses, and much more. If you are new to the whole tax-filing and deduction process, don’t worry, we will help you out today. Suppose you still don’t know how everything works. In that case, you can go on the internet and read any Self Employed Tax Guide to get a better understanding of tax-deductible claims.
In this article, we will share with you what you can do to claim tax-deductions.
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Money Used To Buy Gifts For Clients Or Customers
The money sent on gifts that you hand out to your clients and customers may fall under the category of tax deductibles. But, sometimes these expenses are not fully claimable of course, you will only get a percentage of the cost of such gifts. And that too if they are less than 25 dollars per person.
For example, you can only claim 25 dollars on a 100 dollars of wine that you gifted to a customer to show your appreciation. The other $75 will go from your pocket. But, in case you give your client $25 gift, you can easily claim the entire deductible amount as it falls below the limit of 25 dollars.
The bottom line is, you have to wise up and make better gifting decisions.
Money Used For Business Related Entertainment And Meals
There used to be a time when you were able to file a claim for 50 percent of the costs of business-related entertainment activities. Imagine throwing a huge party and inviting clients and only bearing fifty percent of the entire cost. That is not possible anymore after the implementation of the Tax Cuts and Jobs Act in 2018. But, don’t worry, as there are other ways you can file a claim for such a business-related activity.
One of these ways is to take your valued clients for dinner one at a time. The caveat is, you need to conduct any form of business with them. Also, you or an employee from your company should be in attendance at the dinner. The meal should not be a thousand dollar lavish dinner as well. For example,
if you keep these things in mind while taking out a client for $200 dinner, you can get a claim of a hundred dollars from the bill and the tip as well.
Transportation And Automobile Expenses
You can file a deduction claim for travel and automobile expenses. Travel and mobile expenses include traveling for work-related reasons such as going for a business meeting in your locality. It will provide you with a reimbursement of money equivalent to the miles you drove during the tax year for any business purpose. However, you must separate your personal traveled miles from your business ones.
For example, maybe you are the owner of a home-based computer servicing business and had to travel twenty miles to service a computer. Then you moved five miles to a restaurant to pick up dinner. You can get reimbursement for the twenty miles you traveled, but not for the dinner-related ones.
The IRS will reimburse you for those traveled miles, or you can also opt for the standard rate, which is fifty-eight cents per mile. Those twenty miles will become forty, in reality, as you also will have to travel back to your place of business operations. If you frequently travel to service computers, imagine the amount of money you can claim for the next tax year.
Money Spent To Buy Promotional Items
Gifts that you distribute for the sole purpose of promoting your brand or business are not the same as ones you give from your heart. The deduction process works differently for them compared to regular ones. Such a thing is applicable if your promotional gifts are less than or equal to four dollars. You can get one hundred percent of your money back by filing a claim on promotional gift items that fall under such a category.
For example, if you give out numerous promotional gifts such as pens, pencils, or mugs, you can file a full claim on them and get all your money back. However, you have to ensure that the item’s amount is in the thousands and has your name printed on the promotional item.
Monthly Phone And Internet Bills
Whether you file a claim for the home office tax-deductible, that is your choice. However, you can also file a claim on your monthly phone, internet, and fax bills. The crucial thing to do here is to file a claim on calls, internet usage, and fax expenses incurred due to business-related reasons only. You obviously cannot file a tax-deductible claim on that call you made to your family unless it was for business reasons, of course.
If you run a single phone line at your home office, you should not file claims on your entire bill. It is a wise decision to do it only on long-distance calls that you made for the sole purpose of conducting business. But, if you have two phone lines, file on the entire bill for the second one. You will get a one hundred percent tax-deductible claim on it.
Most tax-deductions are complicated and require that you go through tons of paperwork before you even put in a request for a claim. After all, you are dealing with the tax department of your government.
There are various other tax deduction options available for you to claim. But, the tax claim options we shared today will give you a heads up of what to expect.
In the end, all you need to do is come up with accurate paperwork, and your tax claim process will go as smoothly as possible.