A College Startup creates nice tax breaks
First off, I’m not a tax professional, so be sure to consult with one before filing. Therefore, my advice here is just meant to give you an idea of what’s possible – I’m not responsible.
After seeing the tax man take a lot of my money this spring, and as my online income has surprisingly grown this year already, I’ve been doing some research on keeping more of my online income to myself and my business. Here are the best tax breaks that even self employed, sole proprieter college [online or offline] businesses can take:
Obvious operating expenses – Things like hosting, domains, freelance work contracted out, advertising, etc can be counted as regular business expenses.
Office Space – You can deduct your home office in your apartment or college home, but only if the space deducted is only used for business and is the location where you perform the vast majority of your business and administrative tasks. The amount you can deduct is the fraction this office space makes up of your total square footage times your rent. Personally, I’ll be able to deduct about $30/month for this, so over a year it’ll be $360, which is a lot of money for many students.
Office equipment and furniture – This can be a tad bit trickier. Office equipment and furniture can be deducted as either capital expenses (because they are purchased in order to increase future profits) or as business operating expenses. If you deduct them as capital expenses, the tax break comes from depreciation, while as business expenses the break is a one time deduction. You can only claim it as either a business expense OR capital expense, and for simplicity as a business expense is easier. Similar to office space, the equipment must be used only for business use and not for personal use.
Business meals, travel, and entertainment expenses – Be very careful with this one – any obvious abuse could put you on the “to audit” list. When used properly though, they are a fair and helpful tax break. There are understandably lots and lots of rules to these expenses, so read about them very carefully at the IRS website to make sure that your expenses qualify.
But as a general rule, you can deduct business travel at roughly $.48/mile driven (last year’s figure anyways I read), which covers everything, so you can’t re-deduct fuel, depreciation, and other traveling expenses.
For meals, lodging, and tips, generally you can deduct 50% of the expense if it is acceptable and not too extravagant. Don’t expect to get by deducting your $900 Final Four tickets or $400 hotel room if your business is grossing $5000 a year though.
Self Employment tax - Finally, you can deduct half the self employment tax that you pay on your 1040.
While you’re might be a bit giddy seeing all these tax breaks, remember that audits happen, and when they do you put up or shut up. So to avoid some federal tax evasion charges, have everything documented and organized, and Do not abuse the tax deductions. While these breaks are nice, they aren’t cheating on.
I know this post is a bit general, and I meant for it to be that way because you need to do your own research on the tax laws, forms, and line deductions before you start getting creative with your accounting.
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- How to ensure that you can sell your college business
- Tax laws for teens (yes, they exist)
- Paying Taxes on Online Blogging Income Simply
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Very excellent post. This is something that is always on my mind. I feel that if your a business owner then might as well get all the benefits you can get.