Business On The Side

Mary Weinand
Our guest blogger is our colleague Mary Weinand, Human Sciences Specialist, Family Finance, in southeast Iowa

Given the economy, many people are trying to make ends meet with a side job or small business. Before you begin, consider what expenses might go with the business as well. Running a business can be profitable but it can be expensive too. Deductible expenses help entrepreneurs with many of the costs of running a company. Business owners include expenditures on tax returns so that not all of the business sales are taxed as earnings.

The IRS realizes there is a cost to doing business but there may be limits and timing issues for many deductions. Business expenses are reported in the year they are paid – which can differ from the year income is earned. There are some exceptions to this rule, which can allow a business to carry a loss forward to the next year. If your expenses exceed your income for the year you may be able to carry forward some of the business expense to the next year. Check with your tax accountant to make sure you are reporting correctly on your taxes.

According to IRS.GOV, you have to file an income tax return for 2018 if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Instructions for Form 1040.

Generally, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment. You calculate net earnings by subtracting ordinary and necessary trade or business expenses from the gross income you derived from your trade or business. You can be liable for paying self-employment tax even if you currently receive social security benefits. The law sets a maximum amount of net earnings subject to the social security tax. This amount changes annually. All of your net earnings are subject to the Medicare tax.

Some common deductions for small businesses:

Vehicle – If you use your vehicle in your business, you can deduct vehicle expenses. If you use your vehicle for both business and personal purposes, you must divide your expenses based on actual mileage.

Employee Salary – If you pay someone to perform business services then you can deduct their salary or contract services on your taxes. Be sure the service is related to the business and not for your personal benefit. For example, if you own a home cleaning service you can’t deduct the employee salary to clean your own home.

Interest – You can deduct the expense of interest for money borrowed for business activities.

Business-Related Education – You can deduct seminars, classes, educational tapes or CDs, and convention fees related to your business.

Brenda Schmitt

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

    

Subscribe to “MoneyTip$”

Enter your email address:

Delivered by FeedBurner

Archives

Categories