Chapter 19: Taxes
The final piece of the taxes puzzle is everybody’s favorite: deductions! If you’re using an accountant, they should take care of these for you. If you’re using TurboTax, they actually do a pretty great job of seeing if you qualify for any deductions. One of the best deductions that most entrepreneurs can use is the mileage deduction. If you drive a car for your business throughout the year, keep track of the mileage! The IRS allows you to deduct $0.655 PER MILE driven for your business. If you drove 10,000 miles, that’s a $6,550 deduction!
Another common deduction for aspiring entrepreneurs is the home-office deduction. While not as lucrative as the mileage deduction, it’s generally worth doing if you’re working from home. The IRS states:
“If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area. You need to figure out the percentage of your home devoted to your business activities, utilities, repairs, and depreciation.”
This also qualifies if you rent for your housing. The basic premise is that you can take how much you pay for housing, and figure out what percentage of your home is used for your business based on square footage. Then, you can deduct that percentage of your housing cost on your taxes.
The final most common entrepreneur deduction is the Qualified Business Income deduction (QBI). This deduction allows LLC’s to deduct up to 20% of their QBI - which could be a pretty massive deduction. TurboTax has this built in and it’s incredibly straightforward to use. For more information regarding the QBI deduction, check out the IRS website: https://www.irs.gov/newsroom/qualified-business-income-deduction
It’s worth noting that this section on taxes is supposed to be an initial overview on how taxes work to familiarize yourself with the process - I am not a CPA, and it’s always best to check with a CPA when doing your business taxes.