Money Girl discusses why you should create multiple sources of income, the best ways and places to get started, and important tax considerations - plus tools and tips to make sure you manage home business income the right way.
Tip #5: Take Advantage of Business Tax Deductions
While having to pay more tax is a bummer, the good news for entrepreneurs is that there are some nice tax benefits when you make money from home.
For instance, you may qualify for the home office tax deduction, if you have a dedicated workspace for your business where you live. You can deduct a portion of expenses that you’d have to pay anyway, such as rent, property taxes, and utilities, when you have a qualified home office.
So no matter if you use a spare bedroom to do graphic design or a portion or your garage to build furniture for a legitimate business, the deductions can really add up. To learn more, see IRS Publication 587: Business Use of Your Home.
Additionally, expenses for running your business are deductible, such as office supplies, computer software, liability insurance, entertaining, or travel. Claiming deductions reduces the amount of tax you owe. See IRS Publication 535: Business Expenses to learn more.
Online Tools to Manage Home-Based Business Income
Here are some of my favorite tools for managing income from small businesses:
- QuickBooks is the gold standard bookkeeping software for use on your desktop or in the cloud. It’s easy to understand (even if you’re not an accountant) and is loaded with functions.
- FreshBooks is a cloud-based application for tracking invoices, expenses, and time spent working, and integrates with online bank accounts.
- Wave is a cloud-based application for tracking invoices, expenses, and payroll for a small business—plus, it also offers other tools and features for your personal finances.
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