Your business’s success is in your hands when you’re self-employed, so you need to be knowledgeable about and take advantage of whatever assistance is available—especially when it comes to lowering your tax bill.
It’s commonly known that the government subsidizes certain personal expenses when you work from home. The key to this deduction is to use a dedicated space regularly and exclusively for business. Additionally, part of your utility bills, phone and Internet, and insurance costs may be deductible. You can also write off part of your rent or, if you own your home, depreciation. In recent years, the IRS has come up with a simplified method for figuring out this deduction allowing taxpayers to deduct $5 for every square foot.
Once you start working for yourself, the door opens options and choices for tax-sheltered retirement plans. You can contribute pretax money to a simplified employee pension (SEP) or a solo 401(k), both of which have higher annual limits than regular individual retirement accounts. You may also get a tax credit for your retirement plan’s contributions if your income falls below a certain threshold. It’s called the Saver’s Credit, and it can trim up to $1,000 off your tax bill ($2,000 for married couples). The credit is worth 50%, 20% or 10% of your contributions, depending on your adjusted gross income.
Don’t discount the qualified business income deduction (a.k.a., the Section 199A deduction). It’s available for owners of S corporations, partnerships, LLCs, and other “pass-through entities” as well as those operating as sole proprietors. It’s a tricky tax break with several particular rules and restrictions, but the write-off is sizable if you can jump through all the hoops. Generally, eligible self-employed people can deduct up to 20% of qualified business income (QBI) from their business. QBI is the net amount of income, gain, deduction, and loss from the business included in your taxable income (minus capital gains and losses, certain dividends, interest income, wage income, and a few other items). However, the deduction is subject to various limitations if your 2020 taxable income is $326,600 for joint filers, $163,300 for all other taxpayers.
There are more tax breaks for small businesses, and to take advantage of them the right way, you need experts on your side. We can help you discover tax breaks and deductions that will keep your business growing for years to come. Contact me today at (540) 720-5656, and together we can dive into your business financials, savings, and opportunities.
Adapted from Kiplinger1
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.