Balance Pro Staff
August 23, 2022
You've heard that you should deduct your business expenses, but why? How do writing off business expenses help me save money? This article explores examples using realistic numbers to help you understand how deducting business expenses can help put money back in your pocket.
David is a small business owner who earned $81,000 in 2021. His self-employment tax is $12,393, and his income tax is $10,807. David kept track of his business expenses which equal to $2,100. These expenses count as tax deductions and reduce his net self employment income to $78,900. Now, with $78,900 in taxable self employment income, he pays $12,072 in self-employment tax and $10,345 in income tax. Adding the business expenses saved David over $780 in taxes.
Sonya is a self-employed freelance web designer who earned $62,500 in 2021. Her self-employment tax is $9,563, and her income tax is $6,737. Luckily, Sonya kept track of her business expenses which equal to $5,700. These expenses count as tax deductions and reduce her net self employment income to $56,800. Now, with $56,800 in taxable self employment income, she pays $8,690 in self-employment tax and $5,483 in income tax. Adding the business expenses saved Sonya over $2,100 in taxes.
Julie is an elementary school teacher that uses her own money to buy classroom supplies. As a teacher, Julie can write off up to $250 each year for any expenses on school supplies according to the IRS.
This post is for informational uses only and is not legal, business, or tax advice. Please consult with an attorney, business advisor, or accountant with concepts and ideas referenced in this post. Balance Pro assumes no liability for actions taken in reliance upon the information contained in this article.
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