Tax Deductions (2)

 

Tax Deductions for the Self-Employed

Taking care of the day to day operations of your own business is complicated enough. Taxes can add a whole other level of stress to running your business. This article will go over different tax deductions and benefits that are available to you.

  1. Self-Employment Tax Deduction

Self-Employment tax deduction refers to the amount of Medicare and social security taxes that you are responsible for paying on your income. This amount is higher than what an employee would have to pay. The IRS gives you a break by allowing you to deduct half of what you pay from your net income. They view this half as your “employer paid” portion. While it may seem more substantial upfront, it’s not as horrible as it seems. Payroll taxes are extremely important to pay correctly and if you are unsure meet with someone who can help you to complete your payroll correctly.

  1. Home Office Deduction

Looking for more tax deductions? If you have a space in your home that is exclusively set aside for business purposes, you may be able to deduct some expense from your tax return. If you choose to elect this option, be prepared, it is more likely you will be audited. Keep exacting records and consider preparing a map of your workspace to substantiate the deduction.

  1. Internet and Phone

Whether or not you choose to elect your home office as a deduction, you can deduct your internet and phone expenses. It is important that you only deduct the expenses directly related to your business. This means that if you have one phone line you should not deduct the total cost. Only deduct a portion, based on how much is for personal use and how much is for business use.

  1. Health Insurance Premiums

If you pay for your own health insurance premiums you can deduct all of your health, dental, and qualified long-term care premiums. Keep in mind that Healthcare tax deductions are treated differently based on your business structure. (Sole Proprietor, Partnership or Corporation)

  1. Meals

If you are traveling for business or entertaining a client, you can deduct your meal costs as a business expense. You will need to be sure to keep your receipts and you will only be able to deduct half of your bill. There are some businesses such as truckers that have special rules and different tax deductions for business meals, you should work with a qualified tax preparer to maximize this deduction!

  1. Entertainment

You can receive a deduction on your taxes for entertainment costs. You have to be very careful with what you try and receive credit for. The IRS has several restrictions on what qualifies. Just an example, the person you are entertaining must be someone you are conducting business with immediately before or after the event. Be sure to keep all of your receipts and detailed records of who went where and why they went there. If you have entertainment expenses that pass the test, you will be able to deduct 50% of their costs.

 

  1. Travel

To be able to count expenses as travel expenses your trip must last longer than a business day, require you to get rest, and take place in a city where you do not reside. You must also have a specific business purpose for your trip. Be sure to keep accurate records and receipts. 100% of travel expenses are deductible. Meals and entertainment still only qualify for a 50% deduction. There are special rules regarding tax deductions when you mix business and personal trips. Seek out a tax advisor if you have travel expenses which were both business and personal.

  1. Car

Any expenses you incur in using your car for business purposes are tax deductible. You can calculate your deduction using either the standard mileage rate or actual expenses. If you use the mileage rate you can deduct a certain amount of money per mile you drive (this changes each year, but is $0.54/mile for 2016). If  you use the actual expense method you calculate your total costs for you care for the year and deduct the percentage of the amount of time you used it for business purposes. This means that if you spent $2,000 on expenses and used your car 10% of the time for business, you could deduct $200.

  1. Interest

You can deduct interest that you pay on business financing, this includes business loans, lines of credit and business credit cards, or other forms of business financing. You can only deduct interest that is accrued from expenses related to your business. Any interest accrued for personal purchases would not qualify.

  1. Education

Any expenses incurred from maintaining or expanding your skills in the field of your business are tax deductible. The cost of education to prepare for a new field of work does not qualify.

Whether you have been self-employed for many years, or you are just getting started, do not leave your taxes until the last minute. Keep accurate records throughout the year. When tax time comes employ a qualified tax professional who can help you sort through the mess and get you all the tax deductions you qualify for.