In just under 5 minutes, you can learn these tax deductions and start applying it to your business immediately, no if or but about it, immediately. Let’s go!
First of all thank you to the anonymous reader for providing this question.
He wanted to know what are some super easy and simple tax tips that he can apply right away in under 5 minutes..he was very specific about this requirement.
So we dedicated this video to finding exactly that, the 3 easiest to explain tax deductions that anyone can apply to their business at any point of this year.
Business Mileage Calculation
Here you go #1 is the Simplified method of the business mileage calculation. This is very easy to do and does not require much accounting skills. You simply take the number of miles you travel for business purposes and multiply it by a set rate for the IRS, which I will give you. IN 2021 that rate is 56 cents….So you would simply take the percentage and multiply it by the number of business miles you have.
Now here’s what counts as business miles are important…but here’s what definitely does not count: commuting. Commuting from your home to your place of work will definitely not count as a tax deductible expense. But what does count is the following:
Traveling To Meet Clients
- Traveling to run errands for your business, such as picking up supplies, mailing packages at the post office
- Traveling for conferences, events, or any business related travel where there is a potential for a revenue generating activity will all count toward this.
Remember it is important to keep a log of all your miles on a timely basis, in case you get audited.
Now that we got this out of the way, let’s do a quick example.
Sarah travels once a week to visit her consulting client at the business location.
Each Month, she travels about 500 miles to all her clients. In a 12 month period, that is 6,000 miles of business travel.
So for Sarah she can take a 6,000 x .56= $3,360 dollar deduction for her taxes this year!
Pretty awesome right!
Home Office Deduction
In #2 we have the simplified option for the home office deduction. The home office deduction allows you to take a deduction for working from home when you are your own boss – this would not apply if you are an employee of a company and you are working from home.
Only if you are self-employed.
So what is a home-based business deduction?
It’s basically a rule the IRS has which allows you to take a deduction for the business use of your home.
As I mentioned it is only for business owners or independent contractors and you can qualify if you rent or outright own your home….
So these are the two qualifications that you have to meet in order to qualify for the deduction.
One is this must become your primary place of business. Meaning if you choose to take this, you cannot keep another office somewhere else where you work out of.
If you use a temporary wework solution, it is totally fine.
I think for most ecom owners that is not too hard to meet. The 2nd is the space must be regularly exclusively used for your business. So it has to be a room that is dedicated for business and not split with personal activity, so a living room would be a bad choice for example. If your home is your only business location, it’s easy to show that it is your principal place of business.
But if you work at home and in an office, you will need to consider two factors. These are the two methods of home deduction: one is simplified and one actual expense deduction. If your home office is 300 square feet or less and you opt to take the simplified deduction, the IRS gives you a deduction of $5 per square foot of your home that is used for business, up to a maximum of $1,500 for a 300-square-foot space.
If you haven’t been keeping good records of what else you’re using in your home for your business, this is a great way to get at least some deduction for working from home.
Here’s a quick example: Brad operates his shirt brand from his home office at home. This is his only office and it is used just for his business room. The room is about 200 square feet, so for Brad he can take a deduction of 200 x 5= $1000 deduction just like that, with 2 min of math right there and then.
Startup Cost Deduction
In #3 We have the startup cost deduction. Startup cost deduction is an IRS ruling that allows you to take a tax deduction before you even start operating your business! Yes you can take up to a $5,000 tax deduction for these categories:
- Creating a Trade or Business
- Product Research (Droppoint, Adpy, etc)
- Preparing the Business to Open
- Travel overseas to talk to suppliers, Consultant fees (paying for mentorship)
- Organizational Cost Legal fees, accounting fees, state filings, incorporation, insurance
So if this is your first year operating your business, make sure you take advantage of this and if you haven’t started your business yet then make sure you gather your receipts for all of these categories so that when you do start, you know you already have 5,000 of tax deduction waiting for you during tax time, how sweet is that.
As you can see all 3 tips are very easy to utilize for non-accountants to do. The disclaimer must be given that these are not the tips I would advise our client on as they may not be what gives the most deduction, but for someone just starting out and looking to learn how they can take advantage of the tax code, then this is actually a great start! And you can do this by yourself, in under 5-10 times as they are all simple deductions.
Make sure you don’t miss out and take all 3 of these deductions this year when you file your taxes.