How can I legally deduct website expenses from my taxes? Does my website have to be an official corporation or something?
The laws vary from country to country, it's best if you write the name of the country you're interested in.
Yes, if the website hosting is used for your business and your business only you can deduct it, you can also deduct a portion(estimate) of the precentage you use for business if you use your hosting to host personal sites.
In the UK you can deduct your business costs from your gross revenue before considering taxation. There are two considerations however: 1) Is the cost 100% business or is there some personal use too, if there is personal use then only the proportion that is business use can be claimed against taxation - the classic example of this for a home web business is your internet connection 2) Is it capital or revenue expenses? Revenue expenses are things like the hosting cost where 100% is deducted as you dont "own" anything out of it - generally they are reoccuring charges. Capital expenses is when you are buying "something" - because the item has a residual value you do not deduct the full cost of purchase from your income but instead you depreciate it over a number of years and it is the depreciation that is deducted from the tax (eg a PC, from memory, is depreciated over 5 years so each year you can deduct 20% of its value). The exception to this is in the first year of trading some items have extra tax breaks to help a business set up and stay in business. You should however speak to an accountant as firstly they will know local tax law and secondly they will be able to help you with what are legitimate ways of increasing your tax breaks and what old tricks are now being closed down (eg buying a personal PC and then leasing it to your own company as it counts as RevEx (as its reoccurring) and wording your lease right used to mean that there was no personal use as the company only leased it 9-5 or equiv) PS - worth noting that software, unless you have to pay an annual license etc, counts as CapEx and so has to be depreciated over time rather than deducted as one lump sum as RevEx
States is similiar to what AstarothSolutions said. Look up Section 179 though it lets US businesses claim some items were large deductions can be taken. Plus if the amount is small (less $100) skip the amortization of those items. As far as claiming stuff for a business entity, corporation, partnership, sole proprietorship: if you made over $425 Profit, you have to file it. That would be Gross Revenue - Expenses. Last thing would be deduct home office expense. It's an involved process but if you have a large Profit every bit helps to reduce SE(self employment) taxes which run like 15% of net.
15% of net???? I so live in the wrong country, makes me sick having to pay my 40% of net income tax and then other income taxes on top of it.
Whoa man, that's just SE tax. There's income tax on top of that. Bottom tier of its like 15% up to 38% iirc. SE tax is for FICA/Social Security etc. Half of that 15% is deductible as a biz expense.
Dont know what FICA is but national insurance sounds like our equiv but it is payable as an employee or self employed... 11% on the first $70k or so and then 1%. If your employed or own a limited company then the employer/ company also has to pay 13% national insurance but it is uncapped. There are no special taxes for being self employed/ sole trader
FICA is like federal unemployment tax, the % is low(1.45%). The Social Security (federal retirement) is like 6.2%. That's 6.2% paid by both employer and employee. If you are Self Employed, you have to pay both. After 90k, Soc security is no longer paid. That amount is adjusted, it was like 92,500 last I checked. It really isn't a special tax for being self employed. It just feels that way to most business people who aren't used to having to make payroll taxes. Does the UK treat stock traders differently? Over here, it gets all mixed up with capital gains and pretty much comes down to they get to skip paying the SE tax.
Dividends has its own tax rates which is a little below income tax. Capital gains tax from sale of shares/ stocks is the same rate as your income tax (but no NI) and you get another tax free allowance for it... hence people getting decent incomes will often set up a limited company so they get $10.5k tax free on income and then $18k on capital gains.... put your partner on the company and then also get their $18k tax free too (though they are now heavily clamping down on this)