Women of Color, specifically Black women, are the fastest-growing entrepreneurs in the nation, starting businesses at six times the national average, according to “2015 State of Women-Owned Businesses Report.” Yet, many moms are leaving thousands of dollars on the table by missing a few simple tax strategies.
Whether you are a stay at home mom, working mom, a stepmom, a mom with adult children, or happily a busy woman with no children, there are amazing tax benefits for all women in business. By starting a home-based business lowers your tax bracket, immediately on day one. Let’s check a few of them out!
Example: Nilah earns $50,000 in a job in Corporate America. If she starts a home-based business that generates a tax loss of $10,000, she pays tax on only $40,000.
Here’s a list of common expenses that are ordinatry and necessary for self-employed women, that Nilah can deduct.
|Deduction Type||Deductible Expenses|
|Home Office Deduction (Line 30)||Expenses related to a home office (e.g. business portion of rent, utilities, repairs, insurance, mortgage interest).|
|Office Expenses (Line 18)||Office expenses (e.g. cleaning services for office, general office maintenance) that don’t have a separate category.|
|Supplies (Line 22)||Any supplies that you use and replace (e.g. cleaning supplies if you clean homes, office supplies like pens or printer ink, hot/cold bags if you do delivery).|
|Travel (Line 24a)||Travel costs related to business trips (e.g. lodging, airfare or rental cars, local transportation). The travel must be overnight, away from your residence and primarily for business.|
|Advertising (Line 8)||Any materials for marketing your business (e.g. flyers, signage, ads, branded promo items, events or trade shows) and the cost of developing those (e.g. agency or designer costs).|
|Meals / Entertainment (Line 24b)||Meals or entertainment that you had with a client and during which you engaged in business discussions, or those incurred while traveling on an out-of-town business trip.|
|Other Expenses (Line 27a)||Any other business expenses that are ordinary and necessary (e.g. education to improve skills for your job, banking fees, association dues, business gifts, industry magazines).|
Tax Deductions for Moms. Historically, the American tax code has always rewarded American business owners. Moms who are able to hire their children have a significant tax advantage in the United States. In 2017, your children don’t pay federal income taxes on the first $6,300 of income (i.e., wages) this year. This is called the Standard Deduction. Plus, you can still claim your children on your tax return as a dependent and even qualify for the Child Tax Credit. This strategy can be used with multiple children. Take $6300 and multiply by the number of your children working for you and voila! Major tax savings for you, Momma!
So, we can see that Nilah, an even single woman will see major tax savings, just by starting a home-based business. Women who have children whom they can hire aka “Moms,” will see these tax savings dramatically increase.
Lowered Tax Bracket Benefit. Hiring your children often moves into a lower tax bracket. See, each dollar deducted will decrease your personal income tax. That means you can enjoy major tax savings because your children are in a lower bracket than you. If your business is in the 33 percent bracket, you save $33 for every $100 paid to them as hourly wages. Yep, that’s smart!
Can You Say FREE Money? As stated in IRS Section 501, a dependent child only needs to file a tax return if they make over $6,300 in earned income and/or over $1,050 in unearned income. That means that the first $6,300 in income is free money for your child and your business if you pay them up to this amount. Children under 18 are also exempt from Social Security and Medicare (FICA) taxes, which is called free money, honey.
Bonus Tip: After you hire your children, think about hiring your parents for many of the same reasons. The rules are different for this age group — 65 and older have different tax rules — but it’s still the same strategic money-saving concepts as well. Ultimately, this means fewer taxes due for you and another stream of income for them. This can be life-changing when done correctly.
Did this help you? If so, I would greatly appreciate it if you could comment below and share on FaceBook.
PS: Want to discover how to create a full-time income online WITHOUT selling, recruiting, or home parties (so you can spend more time with your kids)? If YES, you should click here.
Important note: Tax laws are subject to change. Always talk with your tax professional for the most up-to-date tax information.