WARNING: Even if you’re just “thinking” about being your own boss, the following information may cause you to experience unexpected exhilaration, a soon to be persistent sense of freedom, and chronic joy.
On January 1st I’ll do what I always do. Set aside time to reflect on my goals for the coming year – health, relationships, spiritual, home, financial, and of course, business.
During the last days of December I’ll also do what I always do. Make sure to take full advantage of every available tax advantage of self-employment.
My friend and author of one of my all-time favorite books Making a Living Without a Job Barbara Winter said it best
“The American tax system is set up to benefit
the very wealthy and the self-employed.”
No surprise if you already have a business.
However if you have not started your business – no make that ESPECIALLY if you have not started a business – there are some important tax facts (and hence major tax savings) that may surprise you.
But you have to hurry!
SURPRISING TAX FACT #1: You can still take a tax deduction even if you haven’t yet made a profit
If you have not yet launched your business you may be surprised to learn that…
Even if you don’t earn anything from your new business until 2013, you can still write off legitimate business expenses incurred in 2012.
According to the United States Internal Revenue Service, as long as your efforts demonstrate an intention to earn a profit, you can begin deducting any money you invest in building your business right away. In their own words:
You do not need to actually make a profit to be in a trade or business as long as you have a profit motive.”
In fact, even if you don’t make a profit for three years, you can still deduct business expenses as long as you are making “ongoing efforts to further the interests of your business.”
Again from the IRS site:
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year…
Save those receipts because deductible expenses include office supplies, phone, internet, advertising, books, postage, magazine subscriptions, bookkeeping services, member dues – just to name a few.
SURPRISING TAX FACT #2: Part-time businesses can take deductions too
Here’s what the IRS says about part-time businesses.
You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business also may be self-employment.
And being the helpful people they are J the folks at the IRS even provide an example!
You are employed full time as an engineer at the local plant. You fix televisions and radios during the weekends. You have your own shop, equipment, and tools. You get your customers from advertising and word-of-mouth. You are self-employed as the owner of a part-time repair shop.
So that side business making wedding cakes, giving piano lessons, dog sitting, coaching others (sports, life, health, career), or plowing snow (which is what my engineer by day, plow guy by night does) – all qualify to take deductions.
SURPRISING TAX FACT #3: Wherever you are, as long as you’re working – it’s deductible
If you work from home, you can deduct a portion of your expenses.
So if your home has five rooms and your studio, office, or workshop is in one, generally speaking you can deduct one fifth (20 percent) of your rent or mortgage utilities, and home or tenants insurance.
Check with an accountant on repairs and improvements, but as I understand it… work done to your specific work space – for example, the cost of paint or wall treatments – is deductible.
The same is true for work done to your home as the whole. So unless you have an in-home food related business, you can’t deduct the cost of new cabinets.
But a portion of home repair expenses – a new roof, driveway, or septic system – or general upkeep like landscaping or snow plowing that involve your property as a whole would most likely qualify for a deduction.
On the Road
Let’s say you take a 7 day vacation to the Caribbean or Florida or London.
You take a day to call on local businesses to introduce them to your products or services, scout future seminar locales, do research for your book, interview people for your blog, or shoot an on-site video.
You can’t write off your entire vacation of course. But you can write off any expenses — lodging, meals, car, etc. — incurred for the time you spent doing business.
For seven summers my company (that would be me!) sent me off to a quiet, non-Internet connected lake house in New Hampshire for a one or two week writing retreat.
Since I wrote every day, I was able to deduct my mileage, cottage rental, and the groceries that kept me fat and happy as I worked out on the deck.
SURPRISING TAX FACT #4: Learning is tax deductible!
You may not yet know “how” to make money doing your own thing…
But did you know that your investment in LEARNING qualifies as a legitimate business expense?
After all, what could be more proof of your intention to be profitable then investing a portion of your start-up costs in the education and training required to succeed?
Training, Licensing, Certifications
Want to start a business around your love for cooking or wine? Check out the Culinary Institute of America’s Cooking Bootcamps. Start with the Wine Enthusiast Bootcamp this year and with some experience under your belt you’ll be better positioned to apply for a wine training scholarship
Want to work with injured or aging dogs? Register for Cindy Horsfall’s popular Aquatic Therapy training or join Hyun Park’s Englewood-based physical therapy center. But if you really want to go for it become a partner in her business!
Want to start a business entertaining children? Sign up for the 2013 class of the Red Skelton Clown School.
Basic Business Skills
Maybe you already work for yourself but need to hone certain skills. You can deduct these costs too.
Presentation skills: When I was in the corporate world I attended and then went on to deliver an outstanding 2-day course from an international company called Communispond.
Sales training: Sales expert and friend Carolyn Herfurth runs an excellent, results-oriented course for coaches, healers, and others who need to get more “yeses” but hate to “sell”
Writing your own web site marketing copy Even if you don’t talk to potential customers in person, you still need to get people to buy. Another friend (and new first time dad!) Matthew Goldfarb has a great course that shows you how to create sales pages to turn your website into a cash machine.
Business Building Training
You can also deduct the full cost of home study programs that help you launch your business. Some of my favorites are:
- Become an Internet Research Specialist: How to Surf the Web for Freedom and Profit Program
- Accelerated Program for 6 Figure Copywriting
- Leading Tours for Fun & Profit
- Licensing Your Art
- Breaking into Print as a Freelance Author or Writer
- Starting an at-home Pre-School
- Any of the “how to” books from Fab Jobs
Profiting From Your Passions®
Okay this part is blatant self-promotion. But it also makes another important point.
Over the years hundreds of people who naturally think outside the job box have trained with me to become a licensed Profiting from Your Passion® Career Coach.
The heart of the course is a proven coaching system to help clients connect the dots between the things they love to do and creative ways they could make money doing it.
But the course also covers things like what to do before, during, and after a laser brainstorming session, how to design a business that works for you, and selecting marketing strategies that play to your strengths and personality.
That makes the course both a training and business launch program.
Which, here again, if your intent is to earn more than the you spent to take the course – and hence a profit, then the tuition qualifies as a tax deductible expense.
If you like the idea of getting paid to brainstorm, there’s another incentive to act now. Register before the Early Bird deadline and you save $500. That means you can get started today for as little as $282.
The bigger point…
Whether it’s this or any course, the smartest move from a financial/tax perspective is always to pay in full because if you do it by December 31. you can write off the entire cost in 2012.
Obviously if you live in Uganda or Norway… or for that matter Utah or Nebraska… it’s more convenient and cost-effective to learn from the comfort of home. Hence, most of my own students opt to attend the online version of the career coach training.
You may be the kind of person who positively thrives on the energy and connection that can only happen at a live training. If that’s you, there’s another tax plus.
SURPRISING TAX FACT #5: Business-related travel is tax deductible
Whether you plan to join me in San Francisco this January, or travel anywhere for any business-related reason — your travel expenses are also a tax write off.
The travel deduction applies even if the event itself is free.
I’m thinking here of Entrepreneur magazine’s 2013 Growth Conference January 10th in Dallas. Thanks to event sponsor UPS, the entire event is FREE. And this year’s keynote is none other than Barbara Corcoran – author, entrepreneur, and star of the hit show Shark Tank.
Plan ahead so you’re ready to pitch your business to the editors (details at the conference page). The line is long, but it moves fast and you’ll meet really neat people!
Regardless of the event, if you want to take the deductions this year, make sure you book your airfare or pre-paid hotel reservations by December 31.
But don’t just think lengthy “business trips” here.
Local trips to the post office, bank, office supply store, or a local networking event – all qualify as business-related travel.
If you take public transportation, save your receipts; if you drive, track your miles. The IRS Standard Mileage Rate for 2013 its 56.5 cents.
That 3-times a week 10 mile round trip to the post office adds up to a whopping 1560 miles a year which equals a $881deduction. And that’s for one just errand.
Timing is Everything!
Barbara Winter turned me on to this cool tax fact:
Warren Buffet became self-employed in 1943 when at the age of 13 he delivered newspapers and sold his own horseracing tip sheet, claiming his bike as a $35 tax deduction.
What about you? Are you serious about being your own boss? If so, then take a moment now to list the classes, conferences, webinars, networking or other live events you know would help you get there.
Then DO IT NOW. I can’t stress enough:
As long as the course tuition and any related travel expenses are posted to your credit card by December 31, 2012 – even if the course itself is not until 2013 – you can write it off this year.
Again that applies even if you’re self-employed part time and even if you have not yet earned a profit.
It’s like getting free money people!
For more information on deductible expenses and other tax matters visit the Self-Employment/Small Business section of the IRS web site. My Canadian friends can check out http://sbinfocanada.about.com/od/taxinfo/Tax_Information.htm
Live outside the US or Canada? Take the time to learn about possible the tax benefits for entrepreneurs in your country.
If you want to be your own boss, you need to start thinking like a self-employed person now. This includes being aware of the multiple ways you can start benefiting from the American tax system this very day.
More importantly, if my mother passing away unexpectedly at just 61 taught me anything, it’s to not defer something as important as your dreams.
Time is ticking folks. Taxes aside – please don’t let this year end without taking at least one small step to get you closer to where you want to be in the New Year.