Taxes are an important part of the budgeting process for many graphic designers, as many work as independent contractors and are responsible for setting aside money for taxes on their own. When overlooked, taxes can be a costly event. However, there are certain ways to make the blow dealt by taxes a little less painful. Many expenses incurred for the sake of business can be deducted from taxes.
Graphic designers are permitted to deduct ordinary and necessary business expenses. This includes materials necessary for the graphic design process, including software purchased when you're just starting out. These expenses must be paid or incurred in the tax year of which you are deducting them.
If you use a portion of your home for graphic design, the business portion of your home may also be deducted. Note that the use of your home office must be used regularly and exclusively for business. This means that if the area is also used for recreation, it does not qualify. It must also be your principal place of business. You can conduct business activities outside of your business, but your home office must be where you spend most of your time. To decide how much of your home is used for business, divide the square footage of your home by the portion of the home used for business. That percentage can be deducted from rent, insurance, utilities and general repairs.
Most outside office expenses are deductable whether the office is rented or owned. Rent, utilities, insurance and maintenance can all be deducted for free standing structures such as your garage, studio or barn used regularly and exclusively for business. This outside office does not have to be your principal place of business; it just needs to be used only for business.
Daily transportation costs from a legitimate home office to conduct business activities or travel to another regularly and exclusively used office can be deducted from taxes. Designers who travel overnight for the purpose of business can deduct business travel expenses.
Self employed graphic designers can deduct many of their health insurance costs. If you are self employed, you can also deduct various uninsured medical expenses, including medications (non-prescription), acupuncture and contact lenses on Form 1040, Line 29.
Businesses can deduct up to 50 percent of business related entertainment. For example, If you are meeting a client at a restaurant, you can deduct half of the cost of your meal. If you are conducting a business meeting at a golf course, you can deduct 50 percent of the entertainment cost that is directly related to business. Note that entertainment expenses that are considered lavish and extravagant are not deductible.
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