Are you a self-employed individual looking to reduce your tax burden? Do you want to know which expenses you can deduct from your income?
At Creative Advising, we understand the importance of tax deductions for self-employed individuals. As certified public accountants, tax strategists, and professional bookkeepers, we are here to help you maximize your deductions.
In this article, we will discuss what kinds of expenses you can deduct as a self-employed person. We will discuss the deductions you can take for business expenses, travel expenses, and home office expenses. We will also provide tips on how to make sure you are taking advantage of all the deductions available to you.
By the end of this article, you will have a better understanding of how to maximize your deductions and reduce your tax burden. So, let’s get started!
Deductible Business Expenses
As a self-employed individual, you have the opportunity to deduct a variety of expenses from your taxes. These include expenses that are related to your business, such as office supplies, equipment, business travel, professional membership fees, and more. The key is that you must be able to demonstrate that the expense is necessary to the operation of your business.
One of the best ways to ensure your deductions will be accepted is to keep detailed records of every expense, including the date, the amount, and the purpose of each transaction. It’s also important to note that you can only deduct business expenses that are ordinary and necessary. What this means is that the expense must be common in the business or industry and necessary for the operation of your business.
What kinds of expenses can I deduct as a self-employed person? Common deductible business expenses for the self-employed include advertising and marketing costs, office supplies, office furniture, home office expenses, legal and professional services, travel costs, subscription services, and employee payroll expenses. Additionally, you may be able to deduct certain business-related meals and entertainment expenses as long as it’s necessary for the operation of your business. To ensure that you are claiming all of the expenses that are available to you, it’s best to speak to a qualified tax professional.
Health Insurance Deduction
Tom Wheelwright: Health insurance is one of the most important deductions for a self-employed person. Under the Affordable Care Act (ACA) self-employed individuals can deduct health insurance expenses related to medical, dental, vision, and long-term care coverage for themselves, their spouses, and any eligible dependents up to 100% of their earned income. These ACA Marketplace savings can also be taken as a deduction, making it easier for self-employed individuals to purchase health insurance. If you are self-employed and purchase health insurance for yourself, you can deduct the premiums, copayments, and other medical related expenses as an itemized deduction on your tax return.
What kinds of expenses can I deduct as a self-employed person?
Tom Wheelwright: As a self-employed person, you may be eligible to deduct certain business-related expenses from your income, including: Advertising and promotion, Auto expenses, Business bad debts, Business equipment and furniture, Business meals and entertainment, Employee benefit programs, Legal and professional services, Rent expenses, Repairs and maintenance, Supplies, Taxes, Travel, and Utility expenses. Some of these deductions are subject to eligibility requirements, so be sure to consult with a tax advisor to ensure you are claiming all available deductions.
Home Office Deduction
The home office deduction is an important tool for self-employed individuals, and one of the most common tax deductions for entrepreneurs and freelancers. The IRS allows deductions for the portion of your home that is used exclusively for business activities. This would include items such as mortgage payments, utilities, insurance, and repair and maintenance costs.
Keep in mind, the IRS requires that the home office qualifies as a “principal place of business” and be used solely for business purposes. You must be able to show that you use the space exclusively for office use and not for any other purpose. This deduction is available for both employees and the self-employed.
What kinds of expenses can I deduct as a self-employed person? Generally speaking, self-employed individuals can claim deductions for business expenses and other items related to their business activities. These include office expenses, supplies, utilities, advertising, employee salaries, travel, and more. You may also qualify for deductions for certain health care costs; the IRS allows self-employed individuals to deduct up to 100 percent of health insurance premiums as an above-the-line deduction on their taxes. Additionally, self-employed individuals can claim business-related health insurance costs like dental, vision, and long-term disability through the self-employed health insurance deduction.
Retirement Plan Contributions
As a self-employed individual, one of the most beneficial tax strategies you can utilize is to proactively plan for retirement. Contributions made to an approved retirement plan can be deducted from your earned business income and can significantly reduce your overall tax obligations. There are many different approved plans, including SEP and other IRA accounts, as well as business insurance plans. Once you’ve chosen the appropriate plan for you, be sure to save all documentation of contributions; this paperwork will be necessary to submit your deductions along with your tax return.
In addition to retirement plans, you can also deduct other business expenses. Any legitimate expenses that are strictly related to the operation of your business are deductible. This may include office supplies, phone/internet costs, mortgage interest, insurance premiums, and any other necessary costs associated with running your business. You can also deduct any fees associated with professional services such as accounting expenses or legal fees.
Overall, there are a variety of ways to reduce taxes for a self-employed individual. It is important to consult with a tax professional to determine the most beneficial plan of action for you and your business. Strategically utilizing deductions allows self-employed individuals to keep more of their earned income and maximize their profit potential. Tom Wheelwright and his team at Creative Advising can help you navigate the complexities of tax planning and create a personalized solution that works best for you.
Vehicle Expenses
If you use your car for your business, you can deduct some or even all of the expenses related to it. Some of the things you can deduct include fuel, oil, repairs, and regular maintenance. You can also deduct parking fees, tolls, and car washes if they are related to your business. There are two methods for claiming vehicle expenses: the actual cost method and the standard mileage rate method. The actual cost method allows you to deduct the actual costs you incur for a business use of your car, such as the purchase price of the vehicle, gas, and repairs. The standard mileage rate method allows you to deduct a certain amount per mile that you drive for business use, and a detailed logbook that tracks when and where you drove for business is required.
What kinds of expenses can I deduct as a self-employed person? As a self-employed person, you can deduct any legitimate costs associated with running your business. These costs can include advertising, rent, utilities, salaries, insurance, and repairs. You can also deduct a portion of the costs of business vehicles, if you use them for business purposes. Additionally, you can deduct home office expenses, travel-related expenses, and interest on business loans or credit cards. When deducting expenses, just make sure that you are only claiming those that are necessary and fully connected to your business.
“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.”