There are various benefits to being self-employed. You can call the shots, including setting your schedule and not having a cap on your wages. However, you don’t have an employer taking deductions from your paycheck. You have to keep track of your tax obligations yourself.
Self-employed people may find the taxing of their income financially crippling. One way they offset their tax burden is by taking deductions that minimize their net profits. A common question they ask is what deductible legitimate business expenses they have.
You might be able to take a tax deduction for part of the rent or mortgage, utilities, maintenance or property taxes if you work from home. You’ll need to determine what portion of your home you use regularly or exclusively for your business. You can take a percentage of your monthly housing costs or $5, whichever is the highest.
You can deduct a portion or all of your phone and internet costs when filing business taxes. You’ll be able to take a deduction for a portion — if not all — of the associated costs, provided that you’re not reimbursed for them. You can take a full deduction if your line or connection is fully dedicated to your business or a percentage of the costs if you use it for business and personal use.
Acquiring the knowledge necessary to grow your business may require you to attend continuing education classes. You may qualify for a tax deduction for that.
Other self-employment tax deductions
It is possible to take other deductions as a self-employed person, including ones for:
- Retirement savings
- Travel and food
- Your car
- Self-employment taxes
- Office supplies
- Health insurance
The above are only some deductions you can take on your tax return. You have to be cautious when doing so, though, as it can trigger an audit. You may want to consult with a tax attorney if this occurs, as the Internal Revenue Service is a formidable opponent that you don’t want to upset. It can have significant consequences on your freedom and financial future if you do.