Even though it’s great to be your own boss, tax time can be stressful for the self-employed. Make sure you’re taking advantage of the tax deductions and credits you’re entitled to as a self-employed taxpayer. When you’re in business for yourself, you have a lot on your plate, and busy people can sometimes overlook write-offs, even the most obvious ones.
The most important thing you can do during the course of the year is to keep careful, accurate records. There’s no need to manage a mountain of untidy slips of paper. The IRS accepts digital copies of receipts, scanned receipts, e-receipts, electronically saved documents, and readily accessible software accounting records in case of audit.
Use Of A Home Office
A workspace could be a room at home for an office, a garage, even a garden shed. What’s important is that the working space is truly a dedicated one, whether you own or rent. Measure the space as a percentage of your home’s square footage. Deduct the applicable percentage of one year’s deductible mortgage interest, home depreciation, property taxes, utilities, supplies, homeowners insurance and home maintenance. For phone and internet, you should only deduct costs that correspond to your business versus personal use.
Health Insurance Premiums
Don’t overlook the health insurance deduction. All of your health, dental, and qualified long-term care insurance premiums are considered eligible for the self-employed who qualify. The same goes for any premiums you paid to provide coverage for your spouse, your dependents, and your children who were younger than 27 at year-end, including children who are not dependents.
When you use your car for business, keep a log of business use mileage and purpose of trip to deduct accordingly using the standard allowed IRS mileage rate. If you prefer to use actual car expenses as a percentage against personal use, be sure to track carefully and calculate everything: payments, depreciation, registration fees, insurance, garage rent, licenses, repairs, maintenance, parking and tolls.
Travel, Meals, Entertainment
Business trips must have a specific, planned business-related purpose to be 100 percent deductible, including transportation and lodging, with an exception for meals and entertainment, which are limited to 50 percent deductible. The key is keeping accurate records and receipts for your business travel expenses and activities and documenting the nature of the business conducted.
Publications, Subscriptions, Educational Courses
Trade and professional journals can be expensive. Books, e-books, research documents, web courses, local college courses, or other classes or materials that keep you current in your business qualify as deductions. General media such as daily newspapers and mainstream magazines would not be covered, nor would courses unrelated to your current business. Don’t overlook donations to business organizations that are important to the growth of your business.
In the long-term, it’s wise for self-employed individuals to lay out a strategic tax strategy that considers potential for growth. Consultation with a tax professional is the best place to start, but don’t wait until April 15.
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For more tips and inspiration for small business owners, visit Small Business Pulse Los Angeles.