Tax deductions for handyman businesses
When we start a business, it is usually because we have a talent or skill in that area. Most often we neglect or are unaware of the financial aspect of the business. Critical areas such as bookkeeping and tax implications may seem daunting. One vital aspect of your business is to be aware of the available tax deductions for handyman businesses.
The IRS will see you as a business operator, even if you are doing odd jobs as a sole proprietor. The benefit of this is that it allows you to make several deductions. These will ensure your business dealings are legal and the deductions will ease your tax burden.
When do you start paying taxes?
When you register your business, your tax implications begin. You will receive a tax ID number. You will also need this number if you have employees. If you register as a Sole Proprietorship, a partnership, or S or C corporation will have different taxable income flows.
- Sole Proprietors are responsible for paying self-employment taxes like Social Security and Medicare.
- If you have a Partnership, you will have to file an information return. This is a tax document businesses must file to report certain transactions to the Internal Revenue Service. You may submit your individual share of the partnership or the S corporation, on the specialized forms. You will have to confirm which forms are necessary depending on where your business is based.
- C-Corporations are recognized as a separate entity for tax purposes. This means the profit that it earns will be taxed as well. When dividends are paid out, it will be taxed again in the receivers personal capacity.
- S-Corporations work much like a partnership and tax is deducted from the individuals.
What can you claim for?
- Supplies and Equipment
A large portion of your cash is spent on supplies and equipment for work or repair purposes. This can be deducted as a taxable expense. In the event of an audit you will need to provide the proof of purchase, so do keep the invoices in a safe place.
- Automobile and Travel
Your next significant expense is the traveling cost of getting to your customers. Although the task of keeping your mileage can prove to be cumbersome, it is worth the time and effort and can be claimed against your taxes. You must have the odometer reading at the beginning and end of the financial year. Also important to note is the maintenance costs of the vehicle as these can also be claimed.
Insurance is another important expense for a business. Whether it is your personal or business insurance you may claim for a tax deduction. Please do check if you are eligible under your spouse’s insurance as this may be an issue.
- Rental and utilities
Where do you run your business from? Do you have business premises? If so, you can take a deduction for the rental and utilities. If you run your business from your home and have an office, you are allowed to claim for a portion of the utilities and even a portion of the mortgage.
You don’t need to have a whole room sectioned off as your office, as long as you have a desk or workshop that is dedicated to your business workspace, you’ll be able to make the claim. The size of your workspace relative to the size of the house will impact the size of the deduction.
- Medical costs
If you are a self-employed handyman, there are a number of medical expenses that can be deducted. Health insurance payments are also deductible. Be sure to keep records and proof of these expenses.
Modern solutions to help manage tax deductions
As usual in today’s mobile world, there are various online solutions that will assist in keeping track of expenses and potential deductions. Mint and Quickbooks are two leading examples, but there are many more. The golden rule though is to keep track of expenses and keep the slips for everything that you submit as a claim.