Tax Savings for New Businesses

Many people form new businesses and spend money, but don't know what qualifies as a deduction and what does not. It's important to know which deductions can be taken, and that most deductions must be sufficiently documented.

Some items can save you money once you're in business. For example, a home office can be deducted. If the space is devoted to your business, you can deduct your home office. If only a portion of the space is used for the home office, then a portion can be deducted as well, so it doesn't have to be all or nothing.

In addition to the home office deduction, business supplies and furniture can serve as deductions. If you require pens, paper, printers, computers, etc., then you can deduct these items as well. This could also include furniture - desks and chairs, for example, assuming they are used exclusively for the business. For furniture, you can also depreciate it - deducting a portion of the expense over seven years.

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If you travel for business, including mileage, you may be able to deduct it. Remember, you have to keep accurate records (including dates of travel and mileage) just in case. Also consider deducting your car lease. In addition, hotel stays, air expenses (and all expenses while on travel, with the exception of meals) are tax deductible.

Retirement, Social Security and health premiums are also deductible if you own your own business. Remember, if you own a small business, you have to pay double the Social Security contributions you would as an employee. Federal law requires employers pay half and the employee pay half, and self-employed individuals qualify as both, but half of the contribution can be deducted.

Tax Forms

Starting a new business is risky, but the deductions can be significant. Also, to minimize risk associated with a new business, it's wise to have the appropriate insurance, and it may also be wise to form a corporation or LLC - which can give additional tax savings, as well as protection of personal assets.