Being your own boss might discourage you when you think of the extra taxes. Medicare and Social Security taxes are around 15% for the self-employed. An additional 0.9% Medicare tax is required if a combination of wages, compensation, and self-employment income passes the $250,000 mark. However, there are of course deductions that are meant to help you minimize the costs to maintain your business. In this article, we’re going to look at 4 self employed tax deductions that you should be aware of so you can maximize your profit.
Top 4 Self-Employed Tax Deductions
Home Office Deduction
Home office deduction is a benefit that you should be aware of. It basically entails the cost of a workspace in your home that you exclusively use to conduct your business. The tax is also available if you rent the space. The expenses that can be deducted include the business percentage of deductible property taxes, mortgage interest, utilities and maintenance that you normally pay for during the year. Here, you can either calculate the actual expenses or use the IRS form if you feel you might miscalculate.
Also, it is recommended you prepare a detailed diagram of your workspace along with its measurements so you have an accurate report at hand in case of an audit.
Health Insurance Premiums
This is one of the self employed tax deductions that will come in quite handy if you currently pay your health insurance premiums. The deduction is also available if you are not eligible to participate in a plan with your spouse. Conversely, if you pay for the coverage of your spouse or children younger than 27, the premium is again deductible. The IRS has all the information to help you fill in the right form and make sure you benefit from this feature.
For the business travel deduction to be available, you need to demonstrate that the business trip will last longer than a normal workday, that it will take place farther away from your business and that you will need rest. In addition, you have to demonstrate you have engaged in business activities. These include meeting with clients or attending conferences directly linked to your business. The records need to be accurately and truthfully filed here, as the IRS looks closely at these types of forms.
If you qualify, the cost of transportation, meals, and lodging will be deducted. Be careful of making any extravagant choices, they might not qualify.
If you use your car for business trips, then you will need to keep records including the purpose of the trip, the mileage, and the date. These expenses are deductible so long as the trip is for business purposes only. Personal car trips will not be counted as a business trip. The IRS annually updates the standard mileage rate to help you more easily calculate your deductions.
Of course, it goes without saying that taxes can be a little more complicated than this. However, these are some of the most important self employed tax deductions you should consider if you decide to officially start your own business. If you are still not sure about handling the expenses accurately, a public accountant could help you during the process. Be sure to consider all the aspects you could qualify for to make your startup adventure a little smoother.
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