If you’re an entrepreneur, you understand the importance of managing the administrative side of your business. You also know how much of a pain it is (and the time it consumes) to ensure that you stay on track.
What’s worse is that with multiple income streams come different sets of expenses that may or may not be deductible depending on your unique circumstances.
There are, however, a few core expenses that are applicable across industries and business types that you must track to minimize your taxes — your home office, personal property tax, and transportation through mileage deduction.
1. Home Office Deduction
If you run your business out of your home office, then the home office deduction most likely applies to you. The IRS states that your home office must meet two primary requirements to qualify for the deduction: regular and exclusive use and principal place of business.
If you use your space regularly and exclusively for your business, then it may qualify. For example, your kitchen will not be eligible for the home office deduction. Still, if you have a den or bedroom that you’ve converted into a home office, then you may want to look into leveraging this tax deduction.
2. Health Insurance
If you’re American, you understand the pain of healthcare premium prices. Always going up, never coming down.
Fortunately, as a self-employed individual, you can deduct the cost of your healthcare on your taxes.
The self-employed health insurance deduction is a personal deduction for the self-employed. It allows qualifying individuals to deduct 100% of their health insurance premiums, including dental and long-term care coverage for themselves, as well as for their spouses, dependents, and children under the age of 27 who may not be dependents.
3. Deducting Mileage
Finally, let’s talk about deducting mileage. For freelancers and anyone with 1099 income, you will need to keep track of your business-related mileage. Mileage tracking refers to keeping a mileage log of miles driven for tax deductions or reimbursements.
For 2019 tax filings due in 2020, you can claim a 58-cent deduction per business mile driven. Your personal mileage for charity work, medical purposes, or moving can also be deducted under certain circumstances, and the rates differ from the 58-cent business mileage rate.
Keep This in Mind With Mileage
For freelancers, there are some essential things to keep in mind when tracking your mileage. In your mileage log, you will need to include miles driven, dates, destinations, and purpose(s) for your trip. Unfortunately, you can’t deduct your commute to and from your office.
Be aware that if you take the Standard Mileage Rate, there are a few things you cannot do:
- You cannot deduct any expenses that relate to the operation of your vehicle (gas, maintenance, etc.), but you still can deduct parking and toll expenses.
- You cannot switch methods (Standard Mileage Rate to Actual Expenses Method or vice versa) in the same year.
- If you rent (not lease) a car, you cannot use the Standard Mileage deduction method, only the Actual Expense Method.
And while this may seem obvious, it’s still worth noting: you MUST use the mileage rate of that specific year.
How you keep track of these expenses is critical to success.
If you’re old school, you may store all of your receipts in a shoebox, Excel sheet, or Google Drive; fortunately, we know you’re savvier than that.
Tracking mileage and expenses can be challenging for most entrepreneurs, especially if you have multiple accounts, credit cards, and clients. Hurdlr makes this completely automatic with artificial intelligence-based tracking, so there’s no need for you to waste time organizing receipts.
Check out the expense tracking app here.