If you’ve always dreamed of being your own boss and running a small business, there are many considerations to take, including how this transition will impact your financial picture. One of the questions most people ponder is what kind of tax implications come with small business ownership, especially when the business is operated out of the home. In fact, the answer to this inquiry is going to be different for everyone.
Your tax liabilities will vary depending on the Type of Company you run, such as an LLC, sole proprietorship or partnership. But generally speaking, there are many financial perks to running a company from your home, no matter what type it is. If you’re on the fence over whether or not to take the leap, consider the following information, and ask your accountant for specific details relating to your circumstances:
You’ll generally have low overhead costs. Working from home enables you to skip paying for a rented office (which also includes a lot of little expenses, such as transportation and daily meal expenses). It also allows you the flexibility of hiring additional employees to share your workload, or simply extending the number of hours you work. If you do need to spend a little cash to create a home office space, consider setting aside money for it from your next tax refund.
You may receive deductions based on the time you spend out of the house.
If you run a home-based business but have to leave your home office on occasion, you may be able to write off mileage, insurance, repairs and other car-related expenses through the business. This article recommends keeping track of all of your automobile-related expenses. Also, keep record of any work-related trips you take by logging your date of travel, business purpose, and the total trip mileage. On top of that, you’ll also save money from all of the trips you’re not taking – and all of the business suits you aren’t dry cleaning.
If you work out of your home, you may be entitled to certain home-related tax deductions. You’re going to want to let your accountant know which household expenses may also be related to your business, such as phone and Internet bills. If you’re not already a homeowner, you may wish to consider buying a foreclosed home – you’ll save money up front, and having a deed could lead to business and personal tax benefits over time.
Many small business owners are only required to file a single tax return. According to an article published by the Houston Chronicle, the IRS permits qualified small business owners to file with one tax rate for both their business and their personal returns. That means a small business owner isn’t liable for double taxation the way corporations are.
Health insurance may also be tax deductible. If you are self-employed and don’t participate in an employer-subsidized program – meaning you pay for your own insurance as opposed to depending on another responsible party to do so, such as a spouse or parent – your insurance, and that of any family member you pay for, may be deducted.
While taking the chance on owning your own business certainly comes with risks, there are many ways you and your accountant can look for ways to save you money during tax season. No matter what, if your dream is to start your own business, don’t rule out this possibility for fear of tax implications. Do your research, talk to a professional, and maybe – just maybe – really go for it!
