Deduct Your Child’s Allowance: 3 Tax Savings by Owning a Small Business

Self-employed individuals are often exempt from many taxes that the average person without a business is not. In fact, if you don’t have your own small business and want to keep working for someone else as well, it might be worth making an honest effort to earn income on what was just your hobby! This could open up some substantial financial benefits even with only part-time work hours each week in order.

If you’re self-employed or considering becoming so soon but still maintain another job full-time – starting a side hustle can offer huge tax advantages over simply staying put where all of one’s earnings go straight into their pocketbook; especially when they consistently show signs of being able to make money at said entrepreneurial venture while also maintaining a full-time job.

Consider these tax deductions:

Home office tax deductions.

The IRS has simplified the home office deduction, allowing you to deduct $5 per square foot for space used for business up to 300 square feet or $1500 per year. If you use more than that, whatever percentage of your home is used for business can be deducted from your income – but make sure keep detailed records!

For example, if your rent is $1,000 / month and you use 30% of the square footage for business purposes, then that means 12 x 300 = 3.6K would be deducted from your income.

The catch is that the space must be used exclusively for business. So, if your parents sleep in your office on Christmas Eve, you lose out on the entire deduction. The IRS can’t stand when home offices are not actually being utilized as such and will nitpick every detail of a claim to ensure it’s legitimate.

There’s no need to worry about the cost of your computer, either. You can deduct a percentage based on how much you use it for work purposes! For example if you are using your computer 50% of the time for business related activities, then half that price is considered tax deductible.

Did you know that there are more than a few tax deductions for your utilities? You can deduct the same percentage of heat, electricity, Internet and other common costs.

Even if you do not have a home office, deductions for repairs to your house can be taken as business expenses. For instance, the installation of an air conditioning system or new flooring may both qualify. Certain renovations and improvements such as installing insulation in your attic are also deductible from income either through direct expense or depreciation (you still need to keep track of these costs).

You can even deduct your child’s allowance by paying them to do age-appropriate tasks around the office like sweeping, dusting, and filing.
I’m sure everyone has had that feeling of guilt when rewarding their slacker children with money for doing nothing after they’ve been playing video games all day while you’re at work. But there is a way around it! You see many people have this misconception about what an “allowance” actually means – but in reality we are talking about wages paid as part of one’s compensation package; not just some kind of gift or bonus given out without any obligation attached (which would be called tip). 

Travel expense tax deductions

You can deduct your business-related travel expenses, like hotel and airfare. You can also deduct 50% of the cost of your meals on your business trips or even business meals in your home town. It’s vital to keep a journal so you can prove that your travel was business-related.

You could even have a working vacation and take the family along. You won’t be able to deduct their travel or food costs, but you can still deduct the cost of your hotel room. Of course, if your family members work for you, it’s a moot point!

If you are also vacationing, be sure that you’re spending at least part of the time meeting with clients, going to training, or on other business-related tasks. If you only spend 2 hours out of a week on business, you’re asking for trouble. Be reasonable.

Automobile tax deductions

If your vehicle is used exclusively for business purposes, you can typically deduct all your vehicle expenses. In most cases, your vehicle will be used for both business and personal use, so keep a log of your mileage, designating each trip as personal or business.

In general, all travel between business locations is deductible. So, travel from your home office to the office supply store would be deductible. Travel from one client location to another would be tax-deductible. However, the miles you drive to your office from your home are not tax-deductible, if your office is located away from your home.

These deductions can be used by mileage or business use percentage. If you use your car for business purposes 30% of the time, by mileage, you can deduct 30% of your vehicle expenses. Or, you can multiply your business miles by that year’s designated amount from the IRS. Use whichever method provides the greatest deduction. Typically, less expensive cars would use the mileage method. For more expensive cars, the percentage method provides a larger deduction. Try it both ways.

You can even MAKE money by buying a low mileage used vehicle and take the standard mileage deduction.

There are limitations on deductions for luxury vehicles and SUVs that weigh less than 6,000 pounds – so you may want to consider a heavy SUV to avoid the limits.

Having a small business on the side can bring many useful deductions. Just a few are mentioned in this article. With a little planning, a significant portion of your rent or mortgage, utilities, automobile, and travel expenses can be deducted. This can easily save you thousands of dollars every year.

Maybe now is the time to turn that hobby into a business. You might even make some money and have a lot of fun at the same time. Consider it!

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