15 Tax Breaks for Self-Employed People

Self-employed workers have become a prominent demographic amidst the COVID-19 pandemic.  These individuals still have to pay taxes. However, thanks to the many tax breaks available to small businesses, self-employed folks may be able to keep a significant portion of their income.

1. Health Insurance

This deduction is conditional, based on whether you are qualified to join their spouse’s medical plan. If you don’t qualify, you may be able to deduct medical and dental premiums for spouses, dependents and children below the age of 27. This deduction is an income adjustment, not an itemized deduction, so it’s not necessary to itemize it to claim it.

2. Transportation

You may deduct mileage costs for business-related travel using your  own car. However, you will need a mileage log to prove your travel. Alternatively, you can opt to deduct car-related expenses such as gas, oil, depreciation, licenses and so on. If you have five or more cars registered to your business, you will have to choose the latter.

3. Education

If you pay to earn skills that you can use in your business, the cost of that education is deductible. This deduction covers tuition, lab fees, supplies, books and transportation to campus.

4. Home Office

If you have a dedicated workspace at home, you can claim for the percentage of your floorplan the home office takes up. The deduction may apply to a portion of the mortgage paid on the entire house, or the rent if they do not own.   Alternatively, you can opt for a simplified deduction, which allows you to deduct five dollars per square foot, up to $300. That amount would cover a 17x17 workspace, which is larger than many home offices.

5. Self-Employment Taxes

One of the most common self-employment deductions is using self-employment tax. The deduction applies to income tax, and you can deduct up to half of your self-employment tax from their income taxes.

6. Retirement Savings

Retirement options for self-employed people may also yield deductions. If you signed up for a solo 401K, you can leverage deductions up to $58,000 (in 2021) on the contributions to that fund.

7. Office Supplies

While they don’t seem that costly, expenses from office supplies do add up. Home offices typically require a lot of supplies, from pens and paper clips to paper and ink for printers. Even if you didn’t use the supplies, they can still be included on the deduction once receipts prove their purchase. For items that have a shelf-life of longer than a year, you can deduct the cost of the item in the year when you bought it.

8. Business Insurance

Insurance premiums can be deducted on Schedule C. Business insurance, accident insurance and employee health insurance are all covered under this single deduction.

9. Phone and Internet Costs

If your business relies on the internet, these utilities can also be deducted from tax payments.

10. Loan and Credit Card Interest Payments

If your business has loans registered to itself, the loan payments can be deducted from the company’s taxes. Many people believe that this is limited to a business credit card, but that’s not strictly true. If the company uses a personal credit card to purchase something for business use, the payments can be deducted just the same.

11. Start-Up Costs

Up to $5,000 in start-up costs and $5,000 in organization costs can be deducted under this schedule. These costs include registration fees and other monetary details that the business must pay to get started as a company.

12. Business Travel and Meals

In the event that you have to travel, the business can deduct the travel expenses, including the cost of meals.

13. Membership Fees

Some professionals, such as engineers and lawyers, are required to join professional organizations that charge fees. If you must pay membership fees as part of your work, you can claim deductions for those fees.

14. Advertising

Advertising that helps promote your business can contribute to deductions.

15. Qualified Business Income Deduction

This deduction, which is fairly new, allows business owners who made less than $163,300 in the previous calendar year to claim up to a 20 percent deduction on their taxable business income. This amount isn’t just for business income, but from all sources. Even if your income is above the limit, you may be able to claim some amount of deductions on your taxable income.

Don’t Overlook Deductions

As any business owner knows, each dollar counts.   BY THE WAY EVERY PENNY YOU PAY TO YOUR ACCOUNTANT REDUCES YOUR SELF EMPLOYMENT TAXES AND INCOME TAXES.  You should call our office for a FREE consultation, to see how we might help you save money on your taxes.

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