7 Reasons Even Grownups Need Lemonade Stands
Every year about this time, my clients start asking how to reduce their tax bill. Sure, I have a tool chest full of goodies, but you know how it is. Fancy tools are really needed when they are needed but only work for one job. The basic tools may be all you need to get the job done.
One great option for tax savings everybody can do is start a side business. No, you don’t need to devote countless hours to creating your next full-time gig. Earning just a little income gives you a great opportunity to deduct so many expenses that you would have still been paying for anyway.
Here are a few things that you would have purchased anyway that become deductible if used in your business:
- Home office – If you have a spare room that you can set aside as a home office, you can deduct $5 per square foot up to $1500. To claim a home office, the space must be used exclusively for the business and you cannot deduct more than the profit of the business. You are already paying for the space. Deduct it.
- Telephone – Did you know that in court cases 100% of your cell phone that is used in business can be deducted? As long as you have a landline in your home, there is no need to allocate personal use of your cell phone. This is also true for family members that have a legitimate reason for having a business phone.
- Auto miles – If you drive to Costco to get office supplies, deduct your mileage. It doesn’t matter if you pick up some personal items, too. You’ll probably need stamps, too. Deduct the miles.
- Travel – Here’s a good one. Get a customer or vendor in Orlando and have an appointment with them when you go to Disney. The whole trip won’t be deductible, but your flight will be. The rest of the family tickets probably won’t be deductible unless there is a business reason for them to be there. Make sure you are following the rules on this.
- Computer – At least a percentage of the cost can be deducted. Check with your advisor.
- Health insurance – This is limited to the income of the business but if you are paying for your own premiums, they can be a deduction to reduce your adjusted gross income. If you didn’t have a business, these premiums are treated as an itemized deduction and are not fully deductible.
- Pay your kids – It can’t get any better than this. If the kids really can perform tasks for the business, give them a paycheck and have them pay their own expenses. If you are a sole proprietor, not only are you shifting the income to a lower (probably zero) bracket, but you are saving on Social Security and Medicare taxes. You will need to give them a W-2 so make sure you get some help with this.