Once you’re a couple of years in business, almost all of your expenses will be deductible. However, as you build your business from scratch, your write-offs will be only limited. In either case, budgeting and tax planning are two of your most important tasks as a business owner. In order not to overspend or have to apply for extra loans, you must take that step early on to avoid any financial complications down the road. If you don’t want to get into trouble when making payments, here are the most important expenses you’ll need to keep an eye on.
Marketing Expenses
While there’s no direct answer to how much a business should spend when it comes to marketing expenses, there still needs to be a general estimate. Marketing will constitute a large portion of your company and is the reason why you’ll garner brand visibility, so you must spend an adequate amount of money on your marketing campaigns without exhausting your budget. Usually, startups only need about 20%-25% of their revenue for marketing costs, while established businesses need only 10%-15% of their revenue. There is more than one way with which you can promote your business. For instance, you can go for affordable marketing strategies such as
Equipment, Furniture, and Machinery
You should also deduct the costs of buying things like office furniture, machinery, shelving, or any item that is expected to last longer than a year within your office. This equipment is considered capital assets and, therefore, must be depreciated (i.e., pay for their costs over an extended number of years). However, some equipment like transportation vehicles, passenger cars, or any equipment that is purchased for recreational purposes, are considered listed property. This means that you must keep your business and personal costs separate.
1099 Deductions
Navigating through your 1099 taxes may not be as easy as you expect it to be, as you will need to research and study first before you can actually track and calculate these taxes. Luckily, there are a number of ways to help you track 1099 write offs, like using an expense tracking app or a 1099 excel template, which you can find online for free. But first, you will need to know the expenses that are subject to 1099 deductions. Here are some examples.
Car Expenses and Mileage
Mileage and car expenses offer one of the most sizable write-offs, as you’re allowed to write off any driving you do while on the clock. For example, you can write off any driving you do for meeting clients, traveling out of town for business, and working between gigs. Normally, there are two ways with which you can track your mileage: the standard mileage rate, and the traditional method. However, the standard method is more used now, as it factors in gas, maintenance, insurance, as well as depreciation. You can easily keep track of your business miles and multiply this amount by 0.575.
Home Office Expenses
This is yet another aspect that will offer a great number of write-offs that will prove beneficial for you if you’re running your business from your house. You can count a portion of your house expenses as a tax write-off; however, there are two conditions you need to use this type of deduction: your house must be the primary place of business, and your workspace must be used exclusively for work, so if you work outside your house, for example, you can’t count this as a deduction. You should also have a space that is exclusively dedicated to working, like a home office or a desk in a room that is used only for running a business.
When it comes to calculating these deductions, you have two options: the simplified method, and the regular method. The former is used by multiplying the square footage of your house by 5. The regular methods entail tracking all costs related to your house and determine the amount you need to allocate for your home office by using the form 8829.
Health Insurance Premiums
You can count both your health insurance plan and that of your spouse’s as a tax write-off, but, as you may have guessed, there are two conditions for that. The first is you must be paying your plan, and the second is your spouse is not benefitting from a health insurance plan of their employer. Self-employed individuals may also be qualified to write off their health insurance premiums, but they must not be covered by their spouse’s employer-sponsored plan or have another job.
Insurance Costs
Insurance is another factor you need to take into account when making a budget plan. There are a couple of business insurances that you must have. For instance, general liability will protect you from a variety of claims like property damage and bodily injury. General liability is usually combined with the Business Owners Policy (BOP), which also includes property and liability coverage. You must also purchase a workers’ compensation insurance, as it will cover medical expenses, a good portion of workers’ lost wages, and rehabilitation and death benefits. After you get these two, you can think about getting other types of insurance, like business interruption and credit insurance.
Maintenance Expenses
As your business kicks off, you will have to handle extra costs, like general building and equipment maintenance, for example. You might also have to pay for other maintenance expenses such as lawn mowing and snow removal, so you must make an estimate of these potential costs and factor them into your budget plan. Another way to handle these expenses is to depreciate them, but make sure that you consult your tax professional first before taking this step.
With that said, you’ll have a better understanding of your expenses and your business’s financial situation. It is often difficult to handle expenses and taxes, especially that some of these expenses can’t be accurately guesstimated, which can negatively affect your finances and overall revenue. For that reason, you must always allocate an amount of money for any miscellaneous expenses in your budget and tax plan.
List out the expenses -DepositPhotos
