Are you an entrepreneur looking for a tax break? Entrepreneurs have a lot on their plate, including living with the financial risk of their entrepreneurial efforts. That’s why it’s so important for any entrepreneur to be aware of any and all deductions come tax time. There are dozens of deductions to be had, but the tax code is no picnic to go through. So what kinds of things should you look for if you’re an entrepreneur filing your taxes?
The first thing to keep in mind is that your business expenses are deductions. That means your expenses reduce your overall profit. If your revenue was $500,000, but your expenses – including marketing, equipment and travel, among other things – add up to $200,000 then your net profit is only $300,000. That is the amount you owe taxes on.
Unless you have a C-Corporation you will most likely be responsible for self-employment taxes as well, which is 15.3 percent. Your total tax bill could easily end up being close to 40 percent, depending on how much profit you make and which tax bracket you end up in. It could be even higher than 40 percent. Therefore, any deduction you can get will be helpful. Essentially, at a 40 percent tax rate, every deduction worth $1,000 will save you at least $400 in taxes.
That being said, you must actually run a business and your deductions must be legitimate business expenses. You have both operating expenses and capital expenses to work with but whichever kind you have, make sure to keep careful records and receipts of all your expenses. Don’t overlook the power of deductions as an entrepreneur. They can bring big returns to your overall bottom line.