Best Businesses for Tax Write-Offs

As a self-employed individual, there are numerous ways to reduce your tax liability through various deductions and credits. One often overlooked opportunity is the establishment of a retirement plan for yourself and/or your employees. Not only does this provide a valuable benefit for your future financial security, but it also offers significant tax write-offs.

A SEP IRA (Simplified Employee Pension Individual Retirement Account) is an excellent option for small business owners, allowing you to make contributions to your own retirement account as well as those of your employees. For 2024, the base contribution amount increases to $23,000, with a catch-up contribution of $7,500 and a total maximum amount of $76,500.

Individual 401(k) plans are another option for self-employed individuals who do not have any employees. With this plan, you can contribute up to $22,500 in 2023 (plus an additional $7,500 catch-up contribution for those over 50 years old). Additionally, you may also deduct 25% of your net income as a retirement plan deferral.

When it comes to business-related expenses, there are many other deductions available. These include business travel expenses, depreciation of property and equipment, educational expenses related to your work, advertising and promotional costs, banking fees, and necessary meals. You can track actual expenses or use the IRS's standard mileage rate for business miles.

If you use a vehicle for business purposes, you may deduct the dollar value of those miles. Similarly, if you have a dedicated workspace within your home, you may be able to deduct related expenses. In 2023, an individual can contribute up to $15,500 (plus an additional $3,500 catch-up contribution for those over 50 years old) as a 401(k) deferral, plus 25% of net income up to a total maximum of $73,500.

Retirement plans are not the only tax write-off available. Educational expenses related to your work or profession can also be deducted, making it an excellent opportunity for self-employed individuals who invest in their skills and knowledge.

By taking advantage of these deductions and credits, self-employed individuals can significantly reduce their taxable income and improve their financial situation. It is essential to consult with a tax professional to ensure you are maximizing all available opportunities and following the necessary procedures to claim your write-offs accurately.

Best businesses for tax write offs