Top 5 Tax Deductions for Entrepreneurs

If you're self-employed or you took advice from someone on TikTok last year, there's a decent chance you overpaid the IRS. Their advice is coming from the guy that has never signed a tax return in his life, so it doesn't bother him at all that what he is telling you isn't actually possible, and not without going to jail, at least. I'm a CPA. I've been signing returns for over 20 years. I run a firm with over 290 team members that does this. Every single day for thousands of self-employed business owners. So let me walk you through 5 deductions that are worth knowing. And I'm gonna tell you the truth about each one, including what you'll actually save instead of some made-up number that sounds really good on a thumbnail. So please stay until the end. There's a free download waiting for you. Quick refresher, a deduction is an expense that reduces the income the IRS gets to tax. So we like deductions, and more legitimate deductions means less of your money going to the federal government. Okay, simple. Here's one you've probably heard of but likely never had explained sufficiently. You can rent your home to your business. Now, if your business has a separate entity like an LLC or an S corp, this strategy of renting your home to your business works. What you need to do is you need to hold a legitimate business meeting there Your business is going to pay you for the use of the space, just like it would pay a hotel. And then that rent is a deduction for the business, which, as I mentioned, lowers your taxable income. Two reasons this beats the standard home office deduction: the dollar amount is usually higher, a lot higher, and when you eventually sell your home, the standard home office method actually can create a tax bill that surprises most people. This approach of renting your home to your business doesn't. You are going to need a written rental agreement and a log of what happened during that meeting. I personally worked a client through an IRS audit on this. Do it right and it's an amazing tax savings. Okay, the next one, health insurance premiums. If you're self-employed and you're paying for your own health insurance, every dollar you spend on premiums is a deduction. I want to clear up something that the influencer crowd gets wrong constantly. $6,000 in premiums does not mean you save $6,000 in taxes. It means $6,000 gets pulled out of your taxable income. Your actual tax savings is going to depend on the tax bracket you're in. So if you're, for example, in the 22% tax bracket, that $6,000 deduction for your health insurance premiums is worth about $1,320 in real tax savings. Still, you know, Still worth saving, right? Still worth claiming. It's just not the number some guy in a Lambo rental is screaming at you on Instagram. Most self-employed people who file their own taxes simply miss this one on the return. Next one, retirement accounts. Money you put into a qualified retirement account does not get taxed this year, or it does get taxed this year, and then when you pull it out years later, you aren't going to pay tax on the gain. As a self-employed person, you have options that W-2 employees don't, and I'm going to skip the specific account recommendations because the right one does depend on your situation, your income, your business structure, and whether you have employees. I think it's irresponsible to just throw out, "Here's the one you should do." And some of the accounts these douchebro influencers talk about have downsides that nobody mentions until you're already in them. And likely because those guys don't even know what the downsides are because they don't sign tax returns. The principle though that I want you to know here is if you're self-employed and you don't have a retirement account in place yet, you're choosing to pay taxes on money you could be sheltering. Recommendation is to sit down with a real tax strategist who's going to look at your real-life numbers, not that guy making money on tax tips but is unwilling to sign your tax return. And look, the sooner the better, right? Time makes this one exceptionally better, so don't wait. The next one, the S corp structure. When you're self-employed, the IRS charges self-employment tax, which is 15.3%. That covers your Social Security and Medicare tax. This is sometimes referred to as payroll tax. You might have heard FICA, FUTA. All those are really referring to this 15.3%. On $100,000 of net profit, that's $15,300 of tax before you even get to regular income tax. The way your business makes money is a big factor on this one. So you do need to talk this one through with a quality tax pro. But for many self-employed people, especially those that are service-based businesses, an S-corp can make a lot of sense and a massive difference. With an S-corp, your income is split into two parts. There's a reasonable salary part and then a distribution. So the 15.3% self-employment tax is only gonna hit your salary portion. The distribution portion, it's exempt from the self-employment tax. Let's say your reasonable salary is $60,000 and your distribution is $40,000. Well, you just removed $40,000 from the self-employment tax calculation. And at 15.3%, that's over a $6,000 tax savings every year. One word of caution, especially if you're still tempted to listen to those bozo influencers. The IRS has rules about what counts as a reasonable salary. If you pay yourself too little, you're going to get audited and massively penalized. Had a client who didn't do this the right way, $80,000 penalty he has to pay back. Listen to your tax pro, right? If you pay yourself too much, now you're overpaying in taxes, which is unnecessary. A good tax pro is going to help you get the right number because either of those outcomes, too little, too much, is bad. All right, the last one. Business mileage. Every mile you drive for business purpose is a deduction. Client meetings, supply runs, going to job sites, networking events, picking up materials, driving to a bank for a business deposit— it all counts. The IRS sets the rate every year. Right now it's 67 cents per mile. So if you drive 10,000 business miles this year, that's a $6,700 deduction off your taxable income. Not tax savings, deduction, right? Just from driving a car you are already going to drive. The only thing you do need is a log. So it needs to have a date, destination, business purpose, the miles driven. Ton of free apps out there to track this in the background automatically. The reason most people miss this deduction, they didn't start tracking. They keep meaning to, and then the year ends and then receipts are gone, the miles are gone, can't remember when you drove 'em. So please start today with those 5 deductions. Lots of tax savings here. And look, the IRS isn't going to call you up and say, hey, you forgot to claim all your deductions. It's your responsibility to keep every legal dollar that you can. We did put together a free download called 25 Tax Deductions Most Self-Employed People Miss. It covers all the 5 that I just talked about today, plus 20 more with a short note on what you need to qualify for each one. The link is below. Please grab it. And if you want a CPA who's willing to give you good strategy, they will also sign your return, one that will look at your numbers and tell you what you've been leaving on the table. That's what we do at Incite Tax. So book a call. The link is in the description. The tax code is full of opportunity for self-employed business owners. You just have to know where to look. And ideally, you want someone in your corner who cares more about your tax savings within the bounds of the tax code than the need to, I don't know, say, feed their ego, go viral, and take your money with, again, not taking any responsibility for the advice that they're spewing. I just gave you 5 solid tax strategies very much worth considering. Click the link for the free resource to get 4 times the amount more.