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When you go on business on your own, there are many perks you enjoy like setting your own hours, taking only the jobs you want and working for the opportunity to make more money than when you are an employee. Unfortunately one thing most of us are not ready for is doing taxes. Self-employed people spend so much time mastering their trade and learning how to grow their business that there is very little time left for planning ahead of the tax season.

The good news is that there are many tax deductions available to self-employed people:  freelancers, contractors and or anybody who work for themselves. These are five self-employment tax deductions that will help you reduce your tax payment.

  • 1. Part of your house that you use as a home office

If you work from your home or use part of it in your business, self-employment tax deductions allows you to deduct some of your home expenses that are for business use.

Things that you can deduct: The portion of your home mortgage or rent that you use for business purposes; property taxes; utilities, repairs.

How it works: Claiming this deduction is not easy. You will need to calculate the percentage of your home’s square footage that you use, in the IRS’ words, “exclusively and regularly” for business-related activities.  For example, let’s say your home office takes up 5% of  the house’s square footage, then 5% of the house expenses are deductible.

IRS Publication 587 provides several scenarios about home deductions, but it’s important to understand that only those expenses that originate as a direct result of your business activities or use at home can be fully deductible.

  • 2. Health insurance payments

Self-employed individuals can deduct their health insurance premiums as long as they are not eligible to get health insurance through their spouse’s employer.

Things that you can deduct: You can deduct all of your health, dental and qualified long-term care insurance premiums, as well as your payments for coverage for your spouse, your dependents and your children who were younger than 27 at year-end, even if they aren’t dependents.

Read More: For more information about business tax, follow attorney Peter E. Alizio‘s Tax Blog

  • 3. Dining Out

Keep in mind that you can deduct meals as a business expense only if you are traveling for business or meeting with clients.  You can not deduct meals that you eat at home or when you are just out with friends or family, or meals that you eat by yourself at your desk.

Things that you can deduct: You can deduct only  50% of the meal’s actual cost if you keep your receipts, or 50% of the standard meal allowance if you keep records of the time, place and business purpose of your travel but not your actual meal receipts.

  • 4. Your car

Self-Employed individuals can deduct the expenses they incurred as a result of using their car for business purposes. That’s why it’s so important to keep a log with the daily mileage used for each business trip in the car, along with the reason for the trip. If your business gets audited by the IRS you will need to provide this log.

Things that you can deduct:  standard mileage rate (this is determined every year by the IRS) or you can deduct your actual car expenses.

 

When you use your car expenses as the method for getting a tax deduction, you can add all the expenses you had as a result of operating you vehicle, including gas, oil changes, registration fees, repairs, and car insurance.

Once you have a total number for your yearly car expenses, multiply that number by the percentage of time that you used you car for business reasons. For example, you had $5000 dollars on car expenses, and you used your car 50% of the time for business, the deduction will be $2500 for that calendar year.

  • 5. Business Advertising

Advertising along with employee salaries and rent are some of the biggest expenses for most businesses. Luckily business advertising is fully deductible.

Things that you can deduct:  Payments for online campaigns like Google Ads or Facebook ads, social media campaigns, building a website, a logo,  ads on a magazine or newspaper, a billboard, a radio or TV commercial, business cards, etc.

 

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Written By
Peter E. Alizio
Peter is dedicated to providing comprehensive legal advice and support to clients from in and around Long Island. Peter is a dual practitioner working as a CPA in tax compliance and a tax attorney focusing on tax controversy resolution. As the founder of Alizio Law, Peter helps clients resolve their IRS and NYS tax problems. Whether you received a tax notice, are under audit, or owe back taxes, Alizio Law PLLC is the law firm to handle your tax matter(s).

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