Common Tax Deductions for the Self-Employed

Written by  //  January 18, 2013  //  Tax Tips  //  Comments Off

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Million of Americans work for themselves, most as sole proprietors including freelancers. While self-employment offers certain advantages, it also means that such individuals handle a variety of tasks including querying for new work, handling the administrative side of the business plus getting their billable work done. The IRS allows for self-employed people to take certain tax deductions including the following popular deductions that can reduce your overall tax burden.

Automotive

If you use your car for business, then the expenses you incur while driving your vehicle on business can be deducted. You are given some options here: you can either deduct the per mile cost, pegged at 56.5 cents per mile in 2013, or you can track the expenses related to operating your car including insurance, gas, maintenance and registration.

Whichever method you choose, keep your receipts and log your mileage. Do not deduct trips not taken for business and be prepared to explain your deductions if audited.

Home Office

Your home office may be a room dedicated to conducting business or a section of another dedicated room where you sit with your laptop and work. In either case, you are entitled to take a deduction for the business use of your home.

Measure the square footage of your operating space and use that number to calculate your deduction. Related expenses include your utilities, mortgage interest, insurance, repairs and depreciation. To qualify, make sure your office qualifies for regular an exclusive use.

Retirement Plans

Every self-employed individual should consider his or her long term needs when working alone. These needs include the immediate, such as health care, as well as the long term, such as a retirement plan.

The IRS allows small businesses to open a 401(k) plan or a Simplified Employee Pension plan that allows the individual to set aside some income to enjoy a tax break. Ask your accountant about your plan options.

Membership Fees

Certain fees associated with your business or industry may be tax deductible. Those fees do not include health club memberships or social clubs, but they do include business fees.

Such fees can include your membership in your local Chamber of Commerce, the cost for belonging to a writer’s guild, other professional and trade association dues and the cost for belonging to a public service organization. You can also deduct the legal fees you pay to operate your business.

Considerations

Consult with an accountant that specializes in small business and sole proprietor enterprises. Use a tax software program to help organize your return and track deductions.

See AlsoHome Office Tax Tips for the Self-Employed

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