There are many valuable tax deductions available to self-employed entrepreneurs. As a small business owner, it is important to take advantage of these opportunities to help boost your income and improve your bottom line. Tax deductions can also help lower your tax bill. The hard part is simply knowing which tax breaks are available for you to claim on your return. There are twelve noteworthy tax deductions that self-employed individuals should consider for next year’s return (assuming no law changes take effect):
- Health Care: As a self-employed taxpayer, if you are ineligible to join your spouse’s medical insurance plan, you can deduct insurance premiums for yourself, your spouse, your dependents, as well as any children below the age of 27 as an income adjustment.
- Start-Up Costs: You can deduct the costs of forming your business.(up to $5,000 in start-up costs and $5,000 in organization costs that you had to pay to begin your company).
- Qualified Business Income: This deduction is only for eligible self-employed and small business owners as they can deduct a certain percentage of their qualified business income on their taxes. It is recommended that you seek guidance on the special rules that apply and if you are eligible for this deduction.
- Advertising: A majority of businesses use advertising to reach their customers, which is why this is such a great deduction as you can subtract the expenses for promoting your products or services.
- Transportation, Travel, and Meals: A self-employed taxpayer has the option of deducting mileage for business related travel, or calculate transportation expenses such as gas, depreciation, licenses, oil and more. The key to deducting these expenses is documentation to prove the miles driven/expenses incurred and the purposes for why these expenses were incurred.
- Education: If you are taking additional courses to help learn a new skill, the costs of education may be deducted. This includes your tuition, lab fees, supplies, books and transportation to your college campus.
- Home Office: A majority of self-employed individuals have a dedicated office in their home that they use for work. If this is you, be sure to claim a deduction for the percentage of the space that the office takes up in your personal home. This deduction could apply to a portion of the mortgage you have paid on the property.
- Office Supplies, Phone, and Internet: If you have a home office, then you most likely have office supplies, a phone, and internet that you use for business purposes. Expenses such as these can be deducted on your taxes as long as you have receipts that show proof of purchase. For your phone and internet services, you can deduct this as a percentage of business use if you are using your home’s services. If these items are registered in your company’s name, on the other hand, you can deduct the entire bill.
- Business Insurance: Your business insurance, employee health insurance premiums, as well as accident insurance can be accounted for under a single deduction.
- Membership Fees: If you are required to join a professional organization in order to conduct business, you can claim deductions for the membership fees.
- Retirement Savings: For those who have 401(k)s, SIMPLE IRAs, and other retirement plans, you can deduct up to 25% of income in some cases. For those who are 50 years or older, you have the option to deduct even more.
- Self-Employment Taxes: This is the most common deduction for those who are self-employed. You have the option to deduct up to 50% of your self-employment tax from your income taxes.
As you can see, there are many tax deductions available to small businesses that can lower your taxes. If you are interested in maximizing your deductions, consider consulting a certified public accountant (CPA) as they can provide you with strategic business advice and determine how these deductions apply to your company.
If you would like a referral to a CPA that can help point you in the right direction, reach out to my office today at 310-534-5577 or [email protected], and we’d be happy to provide you with contact information.
