If you’re new to the world of freelancing, contracting, entrepreneurship or small business ownership, getting a CPA in your corner is a must. You’re about to delve in to a world brimming with tax write-offs, and since the IRS can (and does) change the rules each year, having a pro on your side ensures you keep as much of your profits as possible. (Worried about the cost of a good CPA? Don’t be — their services are also a tax write-off.)
While I’m not a tax expert and you should consult with one before making any tax-planning decisions, I’ve found these tips to be useful in my own businesses.
2 Rules All Entrepreneurs Should Follow
There are two major rules entrepreneurs need to follow:
- Never mix business with your personal life — it’ll become an accounting nightmare and will throw up red flags for an IRS audit.
- DO NOT try to do this yourself. Just because it seems like a write-off is legal, it might be a hot button for the IRS, and a great CPA will let you know whether it’s worth it or not. There are tons of places to cut costs — this isn’t one of them.
4 Avenues for More Tax Write-Offs
Ready to start organizing those receipts and capitalizing on your expenses? Here are some of the major tax write-offs every entrepreneur should look into:
- Office Space: Whether you rent commercial office space, use a hot desk occasionally or have a home office, you can write off 100 percent of your “business space” as long as it’s reasonable. However, the IRS is looking really closely at home offices. You’re only allotted to use a certain percentage of your home for business, and it has to be exclusively for work. In other words, you can’t write off the space the couch takes up even if you do all your work from there (because you likely sit there when watching TV, too).
- Food & Entertainment: When you travel for work, such as heading to a weekend conference, you can write off 50 percent of food and entertainment costs — again, within reason. You might be able to get by with going to one of the most expensive restaurants in the world and writing off half your tab, but it might not be worth the risk.
- Office Product Purchases: From printers to ink, new laptops each year to smartphones just for business use (you may need to prove you have a personal phone, too), if a gadget or product is solely for business, it likely qualifies as a write-off. Some people try to get really creative and make a case for needing a new curved TV even though they’re a freelance accountant. Don’t be greedy — the IRS is surprisingly already generous enough with office write-offs.
- Professional Services: Your bookkeeper, outsourced HR company, CPA, small business attorney, web host, web developer, SEO guru and anyone else who contributes to your business gives you an invoice for a reason. This is tax write-off gold. It means you can spring for that better graphic designer, so make the most of your service providers.
The life of an entrepreneur is often a stressful and demanding one, but it can also be pretty sweet. Most unnecessarily take on the brunt of financial burdens for no reason. The money is yours; why give it away?
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Image credit: CC by Pete O’Shea