Americans who became self-employed or started a business in 2022 should hire an accountant to do their tax returns to maximize allowable deductions available, according to one expert.
“[If] you own your own business, if you have your own corporation, if you have rental property, I would definitely seek out a professional because there's so many deductions that you can take that most people are not aware of,” Louis Barajas, an enrolled agent and Opportunity Coach on PBS’ Opportunity Knock$, told Yahoo Finance Live (video above).
Many new business owners could be unaware of deductions for business expenses that are available to them, such as costs that are considered ordinary and necessary for the business.
“What people don't know is that they can take any expenses that they use for that business that were ordinary and necessary,” Barajas added.
Since what’s ordinary and necessary in one industry may be extraordinary and unnecessary in another, it’s important to consider what expenses your business actually needs before trying to write them off.
“So that's going to be the first thing that every business owner should ask themselves,” Grant Dougherty, enrolled agent and founder of Dougherty Tax Solutions, told Yahoo Finance in a separate interview. “Is it ordinary? Is it necessary? Is it reasonable?”
For instance, business owners can deduct supplies for administrative work, utilities for the office, or employee uniforms if they are needed in the regular course of business.
Barajas shared two other deductions that business owners may overlook on their own: the home office deduction and Section 179 depreciation.
The home office deduction is allowed for any business owners who have spaces in their home that are used regularly and exclusively for running the business. This area should also be the principal place of the business, according to the IRS website. The deduction is not available to W-2 employees.
“I'm able to take a portion of where I work in my area compared to the entire house, and I can depreciate that,” Barajas said. “I can take utility expenses. If I'm paying a mortgage, I can take expenses based on that percentage off of my self-employed income tax. I can take the property taxes that percentage.”
Barajas also shared the rule for writing off business expenses under Section 179,
“Section 179 deductions that most people don't even know about mean that, when you buy a computer, instead of depreciating it or you buy a printer, you can write it off,” he said.
The IRS has previously issued guidance for section 179 deductions.
“I can't tell you how many times I've had to go back and amend tax returns for people who have done their own returns who had their own businesses or their own rental properties,” Barajas said. “That's when you seek a professional.”
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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