Business owners get more tax benefits than employed workers. They can use more tax deductions to reduce their taxable income and end up with lower effective tax rates. While it’s easy to assume that big tax breaks are only for corporations, workers can choose from many side hustles to capitalize on tax savings. This guide will cover some of the best side business opportunities that have many tax write-offs and some of the most common business tax deductions.
10 Best Side Business for Tax Write Offs
You can choose from many side business ventures to grow your income and reduce your taxes through various deductions. These are some of the top side businesses to consider for more tax write-offs.
1. Rental Property
Rental property investing is a great way to build wealth because you acquire assets that generate cash flow. However, these assets can also minimize your tax bill due to their write-offs. Rental property investors can deduct various expenses, such as mortgage interest payments, property taxes, insurance premiums, repairs, and maintenance. Investment properties qualify for more write-offs than primary residences. You can also write off depreciation each year, which can be significant depending on how you calculate depreciation.
2. Online Freelancing
Online freelancing opens up many opportunities and caters to various skills. You can write for clients, design images, manage social media accounts, and perform other roles as an online freelancer. This profession also opens the doors to more tax write-offs that you normally cannot access as an employee.
Your internet and phone bills suddenly turn into business expenses since you need those costs to keep your online freelance business up and running. You can also write off additional expenses, such as your home office, any business-related professional services you pay for, software and hardware, and other resources you use for your business.
3. Handmade Crafts or Artwork
Do you enjoy making handmade crafts or creating art? Turning these hobbies into side hustles can lead to more tax write-offs. You can deduct the expenses incurred for materials, tools, shipping supplies, marketing materials, ad spend, studio space, and other costs related to maintaining and growing the business.
4. Fitness or Wellness Coaching
Staying in shape is hard enough, but what if you can get paid to stay fit and coach others in the process? Fitness and wellness coaching create this possibility and come with many tax benefits. You can use gym memberships, fitness equipment, certification courses, advertising, and other costs related to your fitness or wellness coaching business as tax write-offs.
5. Blogging or Vlogging
Blogging and vlogging allow you to create content and build a following. This business activity can also result in many tax deductions, such as the costs you incur from internet fees, equipment, graphic design services, video editing services, and other costs. You don’t have to blog and vlog to get the tax benefits. However, it is a good idea to understand the differences between blogging and vlogging before getting started.
A consulting business lets you meet people and offer guidance on your areas of expertise. This business model also turns many expenses into write-offs. You can deduct home office costs, marketing expenses, qualifying travel expenses, courses, and other costs related to your business.
You can write off many expenses that come with running an online store. Inventory, web hosting, advertising, and shipping are some of the costs you can deduct from your taxable income. E-commerce gives you the flexibility to work anywhere and operate within your own hours.
8. Event Planning or Catering
Event planning and catering can become a lucrative business model and lead to returning customers. Each event you’re involved with can also open the door for many tax write-offs. You can deduct food and beverage costs, decorations, advertising, wages, venue rentals, and travel costs, among other expenses.
9. Photography or Videography
Have you found yourself perfecting the art of taking a good picture with your smartphone? Photography and videography allow you to turn this skill into a side hustle, and doing so can reduce your taxes. You can write off equipment purchases, studio rentals, travel expenses for shoots, and other costs incurred for your business.
10. Online Course Creation
Creating an online course allows you to scale your teachings and generate passive income. Many online platforms let you host courses and make it easy to get started. If you pursue this path, you can write off expenses like course creation software, marketing, website maintenance, and other costs incurred during online course creation.
Common Types of Business Expenses You Can Write Off
Are you excited about the possibility of starting a business and writing off several expenses? Listed below are some of the common types of business expenses you can use to reduce your taxes.
1. Office Rent or Mortgage
Any expenses incurred for office space can qualify as tax deductions. Property taxes, lease payments, and maintenance fees are some of the costs you can use to minimize your tax bill.
2. Employee Salaries and Benefits
If you pay employees or contractors to perform services for your business, you can use these business expenses as tax write-offs. Benefits like health insurance and retirement contributions also count as tax deductions.
3. Business Equipment and Supplies
Business owners who purchase equipment and supplies for their companies can use them as write-offs. Computers, printers, and office supplies are some of the common equipment and supplies business owners purchase.
4. Advertising and Marketing Expenses
Any costs incurred for advertising your business can count as tax deductions since these expenses help you reach potential customers. Online ads, print ads, and promotional materials are some of the most common advertising and marketing expenses.
5. Travel and Entertainment Expenses
Qualifying travel and entertainment expenses like airfare, hotel accommodations, and meals can be used as tax write-offs. You must use these expenses for business-related activities to use them as deductions.
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How do tax write-offs work for small businesses?
You can use tax write-offs to minimize your tax burden. Business-related expenses can be used as deductions.
Can I deduct expenses incurred before officially starting my side business?
Yes, you can deduct expenses incurred before you officially start your side business. Business owners can pay business expenses to test their ideas and conduct initial research. It’s also possible to incur deductible expenses before starting an LLC.
Do I need to make a profit in order to claim deductions for my side business?
No, you do not need to make a profit to claim deductions for your side business.
How do I keep track of my business expenses for tax purposes?
You can keep track of your business expenses for tax purposes with a spreadsheet, separate business finances through an LLC, and other strategies.
Are there any limitations on the amount of deductions I can claim for my side business?
There are no limits to how many deductions you can claim for your side business as long as they are all legitimate.