As a one-person business, you know that it’s sometimes difficult to go it alone. You don’t need to handle your taxes this way!
The experts at Insogna CPA can help you maximize your tax deductions, clean up your records, and make sure you pay the least tax possible. We’re here for you.
A sole proprietorship refers a single-member LLC or, in most cases, a single or married couple operating an unincorporated business. If you fall under one of these categories, you will include a Schedule C (SchC) for your business when you are filing your personal IRS1040 taxes.
When you are filing a SchC and in charge of your own business, the tax code treats you and your business as a single entity. You’ll face additional taxes and reporting requirements, but you may also be eligible for certain business tax deductions that we can help add value maximizing your tax savings. Going with some general tax software will not necessarily lead you to enter and make sure you’re getting your full deduction. Let us help
One of the main tax advantages of running a sole proprietorship is that you can deduct the cost of self-employed health insurance premiums for yourself, your spouse, and/or any dependents.
Better still, you can take this deduction even if you don’t itemize your deductions on SchA of your IRS1040 tax return. The health insurance deduction is an “above-the-line” deduction which means it is taken off your gross income before you reach your adjusted gross income.
If your business happens to have a loss for the year your health insurance deduction is limited by the amount of your taxable income. And if you have any months in which you or your spouse are eligible for group health insurance with an employer the deduction is limited. But other than that – you’re free to lower your taxes with this deduction and your SchC business.
Every business has operating expenses, and a sole proprietorship is no different. As long as your expenses are “ordinary and necessary,” in the parlance of the IRS, you can claim them on your SchC. In addition to health insurance, common deductions include meals, travel, office supplies, advertising and fixed assets.
If you operate your business out of your home, you can claim the home office deduction. However, you must use this section of your home exclusively for your business. Certain everyday expenses, such as rent and utilities, can also be deductible.
Many sole proprietors get confused trying to figure out which business expenses are considered equipment vs. supplies. Supplies are things that get used during the year such as printer ink, paper, envelopes, etc.
Equipment (i.e Fixed Assets) typically are higher-value things that last longer than a year like expensive computers, software and office furniture. These can be fully deducted using Sec179 deduction, or amortized over the depreciation life of the asset.
If you run your own business, you’re responsible for self-employment taxes, in addition to regular income tax. Self-employment taxes are the equivalent of payroll taxes.
When you work for an employer, you only pay the employee’s portion of these taxes. As a sole proprietor, you have to pay both the employer’s and the employee’s portions. You are required to pay the full amount of the employers payroll tax, and allowed to take a deduction for half of your employee share of self-employment taxes.
The IRS tends to take a closer look at tax returns filed by sole proprietors because it can be easy to blur the line between business and personal expenses. Even though your business and your personal tax return are combined, the IRS still expects you to keep accurate and distinct business records. If you deduct the full price of a computer, for example, the IRS may want to see records proving that the computer is used for business purposes only.
You shouldn’t be afraid to take a deduction you are legitimately entitled to- which is why Insogna CPA exists…to help maximize your tax deductions, and help you navigate getting the most benefit out of your business activities.