Being your own boss is great, but it can cost a lot. Fortunately you can recoup some of those expenses at tax time with deductions specifically designed for the self-employed. Here are ten of the most important for you to know.
If you use part of your home exclusively for business, you can deduct many associated costs. This includes part of utility bills, rent, mortgage interest, property taxes, and homeowners insurance. Home office deductions are very complex, and those seeking them should have their taxes done by a small business tax preparation service to avoid attracting unwanted IRS attention.
Do you spend longer than a day away from your usual place of business? You can deduct your travel costs both to and within your destination, lodging, and meals. Be sure you have a business-related goal to your trip, such as meeting clients or seeking new ones, and keep good records of your spending.
Dining and Entertaining
Even if you’re not traveling, you can deduct 50% of a meal’s cost if you’re meeting someone for business. You may also be able to deduct some entertainment spending, as long as you do business in conjunction with it. The latter can be a dicey proposition, so ask your tax preparer.
If you use your vehicle for work, you’re able to deduct for gas, registration fees, maintenance, repairs, and insurance. The deduction size depends on the percentage of time you use the vehicle for business.
Interest accruing from a business loan are deductible, as is interest from credit card charges that are for your business.
As both an employer and employee, the government asks self-employed people to pay a total of 15.3% tax for Medicare and Social Security. You’re allowed to deduct half that rate, meaning you’re paying the same 7.65% any employee does.
Because you aren’t bound by employer restrictions, you can move your money to your choice of retirement plan, such as a solo 401(k) or an IRA. You can contribute pretax money, reducing your taxable income, and also a percentage of your net earnings far greater than if you weren’t self-employed. Run this past your tax preparer, as the maximum contribution changes occasionally.
Section 179 of the tax code allows the deduction of many business expenses the self-employed might encounter, up to $500,000. This covers a broad range of equipment and supplies including computers and even business software. Your tax preparer will be able to identify deduction-eligible items.
Self-employed people can deduct health insurance premiums covering themselves and their families. To be eligible, you can’t qualify for insurance through your or your spouse’s employer. Those on Medicare can deduct premiums of Part B and Part D, as well as supplemental plan premiums.
Internet and Phone
You can deduct the cost of business uses of Internet and phone services, regardless of whether you’re claiming home office deductions. The amount depends on whether the services are exclusively for business or mixed-use.
These deductions can be tricky to file, so for most self-employed people it’s best to consult a small business tax preparation service. They know how to maximize your benefit from these and possibly other deductions while avoiding raising red flags with the IRS.
If you’d like to know more about how we can help you get the BIGGEST Refund and pay the LEAST amount in taxes, call us for a FREE Tax Preparation Consultation at (855) 829-8477.