In Your Self Employed Hidden Paycheck – How to Pay Yourself More with Less (Part 1), I showed that my hidden paycheck from being self employed was $23,606. Here’s how the numbers add up. We’re talking about items my family gets a direct benefit from but which can be attributed to the business and taken as small business tax deductions. If you are self employed, your family also gets paid in ‘stuff’ that employees normally buy after they get their paycheck, but you can buy before you take your paycheck. The business purchase of this stuff, instead of a personal purchase, constitutes a hidden paycheck.
Most articles focus on self employment taxes and the tax savings aspect. Oh yeah, I also saved $6,610 in self employment taxes through this tax saving aspect. But this article focuses on the hidden paycheck produced by legitimately buying what the business uses but which also has personal benefits.
Make sure you check with your CPA before you take any of these deductions since your situation is most certainly different.
My Self Employed Hidden Paycheck items include:
Self employed health insurance – First, the big one. As an employee, health insurance is not deductible even if you pay the whole thing. Being self employed, health insurance is entirely deductible. I spent $5,068.
Cell phone – I have five lines for my family. These cost $179 a month after subtracting the kids’ lines, although all are necessary to my business and my sanity.
Home/business phone – Working from home allows me to write off my phone.
Internet – My internet at home costs $50 a month. Who could run a business without that?
Lunches/dinners out – Meeting with clients and prospects over lunch or dinner is a relaxing way to build business. After the 50% deduction, my expenses were only $129 a month.
Party leftovers – My client party at my house had 146 clients and prospects last year. In Berks County, it’s a mortal sin to run out of food, so I ended up with alcohol left and steak, shrimp, and appetizers to freeze. Although extremely hard to estimate, I would estimate $500 was the value of what we ate later in the year with family and friends.
Travel – I have a lot of clients near San Jose, California, where I previously lived; many began as close friends. Traveling there three times last year to see them and the clients they refer is like a vacation for me. Since I stay with my mother-in-law (who I just love), I only spent $2,772 on three trips last year.
Vacation – When many people go on vacation, they work part of the time and deduct part of the cost. I didn’t last year, so my business deductible vacation was $0. Business vacation deductions can be a significant amount.
Home office deduction – Working from home allowed me to take $3,484 last year off my taxable income. Think of it as the business paying part of the electric, mortgage, and everything that goes into maintaining a house divided by the square footage used for your business.
Per diem meals – I found this little known tax deduction that works for me because I stay at my mother-in-law’s house when I visit my clients in California. Per diem meals is an allowed daily rate deduction, where you don’t need a receipt, based on where you travel. The California rate is $59 a day and I spent 47 days there last year. So I get to take $2,802 as business expenses.
Office supplies – We use extra paper supplies such as paper, toner, and notebooks. Maybe it’s not worth mentioning at only about $200 a year, but it illustrates that there are probably common things you haven’t thought of yet.
Auto mileage – If you routinely stop at the grocery store, department store, or friend’s house on your way home from a client or meeting, you have saved yourself a trip and pocketed the mileage. Make it a habit and it is money your household is getting without any spending. At 55 cents a mile, that was around $1,294 last year.
Computer equipment – Who could run a business without a computer? It’s also personal entertainment, a shopping aid, and a correspondence tool. We tend to buy a laptop about every year for either my husband or me and give the older one to our kids or assistants. Patrick’s MacBook and all its software, cases and parts was $2,052. Yes, we bought other computer stuff, but I’m only counting here what we would have had to buy for the family (and be unable to deduct) if we weren’t self employed.
Telephone equipment – Between dropping my iPad and being a woman with the ‘no pockets’ problem, I need to upgrade my cell phone nearly each year. Without extending my contract, it cost $299.
NOW, a big disclaimer.
I do not do taxes! I work with a totally excellent CPA who specializes in self employment taxes and helps me. Then I pass on to my self employed clients whatever they are missing. So if you have any questions about whether something is a business deductible in your situation, ask your CPA. I am only helping to stimulate your brain and get this stuff recorded in the first place. You can’t count it if you don’t track it.
How do you figure your hidden paycheck?