Benefits of Starting a Small Business

[KodyWallice]

I was speaking with a friend the other day and he told me that when he was back in college, his accounting professor told his class that the best thing a person could do is start a small business. He said the reason for this is because of write-offs. Basically, he was saying that even if you start a sewing business where you sew people's buttons back on their pants, you can write-off certain household expenses, which will lower your overall taxes. Things like electricity, heat, thread, supplies, etc... I also remember a guy I used to work with told me that as a salesman, he was able to write off fuel, car expenses, tolls, cable TV, and some other things I forget right now.

My question is, should I start a small business today so I can begin writing things off? Also, let's say I start a YouTube channel to make money, what types of things can I use as expenses?

 

[KristinaW]

In my opinion, I think your friend's accounting professor was correct. Starting a small business is a good idea. To me, it has more to do with personal growth than accounting though, although, the accounting perks are valid.

Far too few people ever consider being in business for themselves, even if the work is easy and it pays well. I mean it. Let's say someone was sitting outside on their porch drinking a beer one afternoon, when their neighbor approaches them to ask if he can get some help mowing his lawn. The neighbor explains that he hurt his leg and won't be able to do it for the rest of the summer. The neighbor asks the woman if she would be willing to sit on his ride-on tractor and mow his lawn for him. It will take about 30 minutes to complete. Literally, all she has to do is sit on the machine and turn the steering wheel. She'll use his lawnmower and his gas. He'll even maintain the mower. For this, he'll pay her $35. Have you any idea what her response might be? I've venture to guess that 99% of the time, people like her would say no. And if she discovered that 17 other neighbors would give her identical opportunities and etch contracts for them in stone, she'd still say no. Even if she had absolutely nothing to do each and every weekend of her existence. I've seen things like this happen over and over and over again, my entire life. That's $630 per week, gone.

I don't know why people shy away from making money. The additional income begins as a side hustle and then turns into something bigger and better. For some, I suppose, the 9-5 grind is all they know and all they want to know. People need to break out of this way of thinking. Start a side business. There are mental perks and well as financial ones. No one is saying to change your life drastically. Just start something up today. You'll love the freedom.

So to answer your question, on this basis, yes, start your YouTube channel. You have no idea where it may lead you. You can possibly become very wealthy, depending on how hard you want to work.

I used to work with a bunch of salespeople. One of them told me about all the stuff he was able to write off his taxes each year. A few things stuck in my mind, such as automobile expenses, cost of highway tolls, fuel, cable TV (to watch competitors), phone, office expenses, and more that I can't remember right now. There was actually a lot he could use to lower his overall income and when it comes to tax time at the beginning of each year, those expenses matter. They lower taxable income, which can be substantial when it comes to how much you'll pay to the government.

Your friend's professor was likely referring to household expenses, such as electricity, computer, home office, heat, etc... Those types of things are typical when it comes to working at home. For you, you'll most likely be working at your computer editing video and outside capturing it. I would expect that you could write off the cost of your camera, lens, computer, software, phone, automobile expenses, fuel, meals, travel, and so much more. Starting a YouTube channel and traveling around to make awesome videos is an excellent way to spend money on doing fun things and using those expenses to lower your taxes. You just need to remember that you need to work hard, put tons of effort into the business, and actually make money. The IRS doesn't take too kindly to those who try to game the system. Don't do that. Truly and honestly start your business with the goal of making money. That's key. The goal is to earn, not to lower your taxes. That's just a side benefit.

I looked up some information for you and found a bunch of lists of stuff people usually use as expenses for small businesses. Take a look through this list and let me know if you think any of them might apply to you. Good luck with your future! I'm excited for you.

Top 25 Write-Offs for Small Businesses

I'll leave out the words "business" and "work related" below. Let's just assume we all know that each of these expenses will need to relate to doing work for your company.

Here's the IRS definition of expense:

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

- Meals
- Travel
- Car use
- Insurance
- Home office
- Office supplies
- Phone
- Internet connection
- Computer/tablet
- Software
- Bank fees
- Depreciation (vehicle, machinery, equipment)
- Professional fees
- Salaries and benefits
- Charitable contributions
- Education
- Child and dependent care
- Energy efficiency for home/office
- Investments
- Medical expenses
- Real estate taxes
- Mortgage interest
- Moving expenses
- Retirement contributions
- Advertising and promotion
- Entertainment
- Start up expenses

Some of these expenses can be taken even if you don't operate a business, but most of them require some sort of business effort. Do your due diligence when it comes to finding out about what you can write off and what you can't. But yes, starting a business is an excellent way to lower your second largest yearly expense - taxes.

 

[Phoenix1]

I remember watching a Seinfeld episode where Kramer was telling Jerry about "write-offs." To him, everything was a write-off. At least I think it was between Kramer and Jerry. Anyway, as it ended up, Kramer had no idea what a write-off was, so he looked like an idiot. It was a great episode though.

Since we're talking about write-offs, I thought I'd explain what they are and how business deductions work. Basically, if you make $100 and spend $100 on the business, you really made nothing. And if you made nothing, you can't be taxed on anything. In other words, business tax deductions lower your taxable income. It really is that simple. Now, you'll need to discuss all this with a CPA (accountant) to make sure you get it right, but it's a straightforward idea. Where it gets complicated is when people start comparing business deductions to things like Traditional IRA accounts, in that the IRA account contributions can also lower taxable income. The problem is, comparing these two things is like comparing apples and oranges. They're not the same. Business deductions can lower all of your taxable income, meaning, you can take a total loss on a business and not have to pay a dime in taxes. When it comes to IRA contributions, they can lessen the federal tax burden, but not the payroll tax burden, so it's not as beneficial. This is far too complicated for this post though, so I'll stop here.

Again though, this stuff is easy for accountants to explain and if you're starting a business, you'll want to get one of those. You don't want to be doing your own taxes in this regard.

With that said, let's talk about some common deductions, above and beyond those listed above, that business can take. They are rent, utilities, health insurance premiums, continuing education courses, parking, car rentals, flights, hotels, postage, and a heck of a lot more. Basically, if you wouldn't have purchased what you just spent money on for yourself without having a business, then it's an expense.

There are a few different types of expenses, so beware of this. For instance, if you buy postage for your business, you can write-off 100% of the amount you spent. However, if you purchase a car, equipment, machinery, or something that will retain value, you'll need to depreciate that expense through the years. You won't be able to deduct the entire amount right away. To be clear, most things you buy for your business can be deducted immediately at 100%, but there are some things that can't be. Those deductions will need to be spread out over a certain number of years. The IRS provides guidance on all of this.

What expenses can be deducted 100% immediately?

- Office furniture
- Office equipment: computers, printers, toner, ink, scanners
- Business travel: hotel rooms, car rentals, meals
- Employee/client gifts (up to $25 each)
- Health insurance premiums (for self employed
- Business phone bills

As you can see, there are a lot of perks to owning a small business and being self employed. If you haven't already, you might want to look into this. You never know what it can turn into.