By
Balance Pro Staff
posted on
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.
The break-even point is a financial term that refers to the level of sales at which a business covers all its costs and makes neither a profit nor a loss. It is the point where the revenue generated by the business equals the total costs incurred.
Are you aware that tax deductions and tax credits bring about a reduction in our tax liability via entirely different mechanisms? In other words, tax deductions and tax credits aren't the same thing, although many individuals often are under the impression that they are.
If you earn over $400 in profit in a given year, which is calculated after deducting expenses, you should assume that you owe taxes as an independent contractor, including those who earn money from streaming.
PayPal's transfer limits are in place to protect users and their PayPal balances, and they serve as a security measure to prevent unauthorized or erroneous transfers. Learn more about PayPal limits in this article.
Are you wondering if you can deduct your gym membership as a business expense on your taxes? Read this article to find out.
Whether you accidentally paid the wrong person or the deal fell through, here's a guide on how to cancel a PayPal transaction, and what to do if cancellation isn't possible.
PayPal provides a simple and convenient way to track all your transactions, and it also allows you to print receipts for your records. In this article, we will guide you on how to print a receipt from PayPal.
There are numerous ways to aid those in need during these difficult times, whether you have already donated to charity or are contemplating doing so. However, you may have questions regarding which charitable donations are eligible for tax deductions.
Balance Pro makes it easy to track your personal finances, so you always know where your money is going.
Sign Up for Free No credit card required.