Lots of work-at-home moms and other freelancers who are new to the tax code for the self-employed may be wondering about how a tax write off can help with the bottom line for any freelance business activities. Using business tax deductions is a complicated issue that is best explained by a professional tax preparer. Many freelancers choose to hire dedicated personal tax preparers who guide them through what can be deducted and how it can benefit their businesses. In general, business tax deductions help lower the amount of taxes that federal and state governments ask for at the end of the year.
What Kinds of Things Are Tax Write Offs?
Although there are lots of specific rules about business tax deductions or "write offs," lots of items can be business tax deductions. A tax write off for a business involves anything that cost the business money over the course of the filing year. Office supplies and other purchases that are bought for the office can be deducted. Some mileage on a vehicle used for business may qualify as a tax deduction. A work-at-home freelancer may also be able to deduct part of the costs of their home if they can prove that they use part of their home specifically for business. Some items, like large electronics for home business, can be depreciated over several years. Freelancers who do research, client interaction or other travel can sometimes claim some of their travel costs.
How Do Business Tax Deductions Help?
Business tax deductions help a mom or other freelancers working from home because they cut down the amount of income that federal and state governments consider "taxable income." In all self-employed and independent contracting situations, the freelancer has to pay double Social Security and Medicare taxes. This can add up to a huge tax bill. Independent contractors and other small business professionals use tax deductions to get that tax bill lower. Those who do independent contracting or freelancing often use a "business gain or loss" form in their tax return to show how much of their income they have reinvested in business expenses. The amounts qualified as business loss or business expenses are not factored into taxable income.
More about Business Tax Deductions for Independent Contractors
It's important to accurately document business tax deductions. Some freelancers can get carried away with claiming all kinds of things as business tax deductions. In extreme cases, an IRS audit may reveal that a freelancer owes more than she calculated, because federal and state governments may not accept all of the deductions claimed by a freelancer or independent contractor. Again, qualified tax preparers are the best people to explain the details around this type of savvy tax accounting for anyone who is trying to build a business from home.
Learning more about the tax code and its applications is a key skill for those who want to be involved in freelancing or independent contracting on a long term basis. Good solid tax knowledge can be essential in building a business from the ground up, and it only becomes more important as your business grows.