At our house, we're busy filing our 2013 taxes. My accountant husband filed for an extension in April, but now we're getting closer to the Oct. 15 drop-dead deadline and both of us are busy putting together the pieces.
This filing will reflect a partial year of his retirement from full-time employment and a partial year of consulting income, as well as a full year of self-employment for me. As we pile up the deductions available to self-employed people, it is clear why having a small business in retirement makes good economic sense beyond the joy of additional cash flow.
It is not too early to look ahead to filing 2014's taxes. You might even have time to start a profitable small business in the remaining months of the year.
What you can deduct is based on what kind of business you're running. Selling used golf balls over the Internet results in different deductible expenses than you might incur as a freelance Internet programmer. But there are a few deductible items that many retirees with a small, entrepreneurial home-based business can take advantage of no matter what the enterprise. Here are four of them:
Medical and dental insurance. As a self-employed person with a business that makes a profit, you can deduct both health insurance premiums and Medicare costs for yourself, your spouse and any children younger than age 27, even if they are no longer dependents.
Long-term care insurance. The IRS actually encourages small business people to take a deduction for the cost of long-term care insurance for themselves and their spouses.
Home office deduction. Beginning with the 2013 tax year, the IRS offers a simpler option for figuring the deduction for the use of a portion of your home as your business office. You can figure out the actual expenses involved, or you can take a flat deduction of $5 per square foot for up to 300 square feet. In our case, it is worth the bother to figure out the exact costs because we have two separate home offices. Even if you have only a single office, you may be able to increase your deduction to more than $5 a square foot by doing the computations.
Contribute to a retirement plan. Even if you are already retired, you still can make a tax-advantaged contribution to a simplified employee pension, or SEP, a solo 401(k) or a traditional IRA -- although the rules are different if you are older than 70 1/2. This is a good way to put aside a rainy day fund -- important to have at any age.
At my house, tax season record-keeping is always a source of marital strife. The accountant can't understand why the writer hasn't kept neat, orderly records. Online accounting programs were made for people like my husband. If you can discipline yourself to keep up with them, that's clearly the best way.
For people like me, I recommend a notepad on your phone and an envelope for receipts in key places -- like your car and your pocketbook. Sorting it all out at tax time is a pain, but the payoff can be big.
Here's more Bankrate tax advice for small business owners.