Are you a self-employed individual looking to reduce your tax burden? Have you been searching for tax deductions that you can take advantage of? If so, you’ve come to the right place. At Creative Advising, we’re certified public accountants, tax strategists and professional bookkeepers. We’ve been helping self-employed individuals with their taxes for years, and we know exactly what deductions you can take to save money.
In this article, we’ll be discussing the most common self-employment tax deductions. We’ll explain why these deductions are so important, and how they can help you save money on your taxes. We’ll also provide some tips on how to maximize your deductions and ensure that you get the most out of your tax return.
So, if you’re looking to reduce your tax burden and take advantage of the most common self-employment tax deductions, read on to find out how Creative Advising can help you.
Business Expenses
As business owners, we have the unique opportunity to deduct a range of business expenses, which can have a material impact on our taxable profits and our overall financial position. With proper planning and sound tax strategies, expenses can be classified and/or combined to achieve the best possible tax outcome. Examples of common business expenses include salaries and wages, rent, utilities, advertising, materials and supplies, professional fees, depreciation, interest expense, and more.
Likewise, self-employed business owners have the potential to take advantage of a range of deductions. These types of deductions generally consist of items that are “ordinary and necessary” for the operation of the business, meaning they are usually common expenses in the industry and reasoned purchases in order to achieve the typical goals and objectives associated with the business’s operations. One key requirement to bear in mind when claiming deductions such as these, is to make sure adequate records are kept to support the written web of purpose and necessity.
What are the most common self-employment tax deductions?
The most common self-employment tax deductions for business owners are likely to be similar to those allowable by other businesses, including expenses related to marketing, advertising, travel, supplies, and work-related training. Additionally, self-employed individuals may be able to deduct certain pension plan expenses, health insurance premiums, and office supplies. Additionally, home office expenses may be deductible if the home office in question is used regularly and exclusively for business pursuits. Self-employed individuals may also be able to deduct expenses related to leasing or owning vehicles, and office equipment such as computers, phones, software, and contract labor costs can also be eligible for deductions. Proper tax planning and advice however is always recommended to ensure the best possible outcome.
Home Office Expenses
One important tax consideration for self-employed individuals is the ability to take home office expenses as a business deduction. Home office expenses can include costs related to the use of your home for business activities. This includes costs such as rent, repairs, utilities, and other basic costs associated with the space you use in your home as an office. It is important to remember that this deduction only applies to the portion of your home that you use exclusively for business activities. When you calculate your deduction, you must proportionally allocate the percentage of business use versus your personal use.
The most common self-employment tax deductions refer to business expenses like office supplies and equipment, travel and entertainment expenses, marketing and advertising expenses, and any other costs associated with running a business. Some of the other deductions available to self-employed individuals are home office expenses, retirement contributions, health insurance premiums, and mileage costs associated with business related trips. All of these deductions can be extremely helpful for reducing the amount of taxes a self-employed individual is responsible for in a given year.
Retirement Contributions
When you’re self-employed, you get to take control of your retirement savings. Retirement contribution deductions have become increasingly important in recent years, and they’re only going to become more beneficial as the years go on. Understanding the various options out there is important when claiming these deductions.
Tom Wheelwright, a certified tax strategist, explains that one of the most common retirement contribution deductions that self-employed people make is an individual 401(k). This type of account allows you to contribute up to $19,500 annually (or $26,000 if you’re 50 years old or above). The contributions are made with pre-tax dollars, helping to reduce your taxable income and lower your taxes owed.
Another popular deduction is the Simplified Employee Pension (SEP) IRA. This type of account is great for the self-employed because it allows you to contribute up to $58,000 for the tax year of 2020. Like the individual 401(k), contributions are made with pre-tax dollars, reducing your taxable income.
Finally, if you’re in a business partnership, you have the option of setting up a defined benefit pension plan. This type of retirement plan enables you to contribute large amounts of money, and often allows employers to write off the entire contribution at once.
What are the most common self-employment tax deductions? When it comes to self-employment taxes, the most common deductions are business expenses, home office expenses, retirement contributions, health insurance premiums, and mileage and travel expenses. These deductions are incredibly important to take into consideration when filing your taxes, as they can drastically reduce your taxes owed, and make sure you have the money to put towards your retirement. Thankfully, with the help of a Certified Public Accountant (CPA) and tax strategist, you can ensure you’re maximising your deductions.
Health Insurance Premiums
At Creative Advising, we understand the importance of having health insurance, particularly when you are self-employed. As an independent contractor or small business owner, health insurance premiums can be an important deduction and cost-saver. With health insurance premiums, you can deduct any amounts you pay for medical insurance for yourself, your spouse, and your dependents.
Self-employed individuals may choose to deduct health insurance premiums as an adjustment to income on their personal returns. This helps to reduce your total taxable income and ease your tax burden. However, there are specific internal revenue service (IRS) rules regarding how these deductions are calculated, so it is important to understand the basics. Self-employed individuals can deduct only the amount of premiums that exceeds 7.5 percent of your adjusted gross income. Be sure to keep all records of your health insurance purchases and expenses for when you file your taxes.
What are the most common self-employment tax deductions?
At Creative Advising, our team of accounting experts can advise you on the best tax deductions and strategies available for your business. As a self-employed individual, you may be able to save money and reduce your tax burden by taking advantage of certain tax deductions. The most common self-employment tax deductions include business expenses, home office expenses, retirement contributions, health insurance premiums, and mileage and travel expenses. Depending on the size and type of business you run, the types of expenses you are able to deduct may vary. Be sure to keep accurate records and receipts, as well as any other relevant documentation, to determine your eligibility for these deductions. It is important to understand all of the rules, restrictions, and regulations involved. Our team at Creative Advising is here to provide the expert advice and guidance you need.
Mileage and Travel Expenses
Mileage and travel expenses incurred by self-employed professionals and business owners are often overlooked as potential tax deductions. If you use your vehicle or any other form of transportation while conducting business, you should keep close records of these expenses for potential deductions on your taxes. In the U.S., the standard mileage rate for business-related travel is 58 cents per mile, which can be a great way to recoup some expenses. You’ll also need to keep a log of the dates, destinations, and purpose of each trip, as this information will need to be included on your tax return.
Aside from travel by vehicle, other transportation costs for self-employed people can also be eligible for deduction. This includes the cost of supplemental transport such as public transportation, taxis, and even airfare. While traveling, meal expenses may also be deductible, as long as they are documented and kept separate from entertainment expenses.
What are the most common self-employment tax deductions? The most common self-employment tax deductions include business expenses, home office expenses, retirement contributions, health insurance premiums, and mileage and travel expenses. Tax deductions can be complex, so always consult a qualified tax professional to ensure that any deductions you’re taking are allowed by the IRS. Keeping good records to support your deductions will also help you accurately report your income and expenses come tax season. Additionally, make sure that you’re taking full advantage of any credits and deductions available to small business owners, as these can help you significantly reduce your tax burden.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
Furthermore, due to the dynamic nature of tax-related topics, the information presented in this article may not reflect the most current tax laws, rulings, or interpretations. It is always recommended to verify any tax-related information with official government sources or seek advice from a qualified tax professional before making any decisions or taking action.
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Please consult with a qualified tax professional or relevant authorities for specific advice tailored to your individual circumstances and to ensure compliance with the most current tax laws and regulations in your jurisdiction.”