As a coach or consultant, you want to make sure that you get the most out of your taxes. One way to do this is to take advantage of the standard deduction. But what exactly is the standard deduction, and how can it help your business? Let’s explore this concept further.
What Is the Standard Deduction?
The standard deduction is an amount set by the IRS that individuals and businesses can subtract from their income when filing taxes. It lowers your taxable income, which in turn reduces your tax liability. For 2022, the standard deduction for single filers is $12,950; for married couples filing jointly it's $25,900; and for those who are head of household, it's $19,400.
Coaches and consultants who file Schedule C on Form 1040 (Profit or Loss From Business) can deduct up to 20% of their net income as part of their qualified business income (QBI). This means that if you have a net income of $50,000 from your consulting business, you can deduct up to $10,000 ($50,000 x 20%) from your taxable income as part of your QBI. This will bring down your taxable income from $50,000 to $40,000 ($50K - $10K), reducing your tax liability significantly.
Other deductions are available for coaches and consultants, such as health insurance premiums paid by self-employed individuals and home office deductions, which also help reduce taxable incomes.
How Can I Take Advantage Of The Standard Deduction?
The most important thing to remember when utilizing the standard deduction is that you must keep accurate records of all expenses related to your business throughout the year so that they can be filed with your taxes at the end of the year. Additionally, consult with a tax professional before filing to understand all applicable deductions and credits available to you. By taking advantage of all available deductions and credits related to running a small business or offering services as a freelancer or consultant, you can maximize your deductible expenses and minimize what you owe in taxes at the end of each year.
Taking advantage of all allowable deductions including the standard deduction is one way that small businesses and consultants can save money on their taxes each year. By keeping accurate records throughout the year and consulting with a qualified tax professional before filing returns, you can maximize these savings while minimizing any potential liabilities associated with running a small business or offering services as a freelancer or consultant. With careful planning and record keeping these savings may even be enough to offset any losses incurred during difficult years due to economic downturns or other factors beyond our control.
For 2023, the standard deductions for single filers and those who are heads of households have increased by almost $1,000; while married couples filing jointly increased by almost $2,000:
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