Ongoing bookkeeping is critical to help you tally up your deductions. To claim these deductions, you’ll need to keep accurate records and stay on top of your monthly bookkeeping. Add them all up and you’re missing out on a lot of tax savings. Remember that restaurant expense you incurred in January last year? Most people don’t, and therefore they miss this tax write off. Many people struggle to stay on top of their deductions year round and instead try to piece things together at year end and run into difficulties. Repeat this for all the available deductions Joe had expenses for, and he can significantly reduce the income he has to pay taxes on-saving him thousands of dollars.Īs a small business owner, it can be difficult to know what deductions are relevant to you.
A nice saving he can use to upgrade his laptop this year. Now, with $54,000 in taxable self employment income, he pays $7,630 in SE tax and $4,200 in income tax, for a total of $11,830.Īdding the additional business expenses saved Joe over $1,500 in taxes!īy locating the $6,000 in contractor expenses, Bench was able to reduce Joe’s tax liability by over $1,500 dollars. These expenses count as tax deductions and reduce his net self employment income to $54,000.
In early 2022, Joe joined Bench and his bookkeeper located $6,000 worth of contractor expenses that he was not aware of. (For simplicity, we assumed Joe is single with no children and no other types of taxable income to consider.) The SE tax on $60,000 is $8,478 (generally only 92.35% of SE income is subject to SE tax) and the income tax is $4,865, for a total of $13,343. He has to pay 15.3% self employment (SE) tax plus income tax based on his individual tax rate. Joe is a self-employed writer and had $60,000 in self employment income in 2021. Making the most of all your available tax deductions can save you hundreds-even thousands-of dollars at tax time.