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Tax Deductions for the Self-Employed.

17 March 2012 One Comment

Have you completed your tax return for 2012 yet? Submitting your taxes is a normal part of the self employed landscape, just as if you were working a normal 9-5 job. Knowing what tax deductions you qualify for as some who’s self employed, is the key to not having to pay back a chunk of money to the federal government. This is why I use someone who’s qualified in the tax arena, than use any of the tax software available. I’m not knocking any tax preparation software.. I’m just comfortable paying the extra fees to someone who’s trained in tax preparation and knows all about the tax deductions I may qualify for. They deal with new laws and regulations on a daily basis, so your taxes will most likely be in the right hands.

 

Here’s an interesting article I came across earlier written by Nellie Akalp, which may help you with knowing what your tax deductions are when it comes to being self employed:

 

Top 7 Tax Deductions for the Self-Employed

These days, more professionals are shifting from the role of full-time employee to freelancer, a movement that some refer to as a gig economy. If you have freelance income to report by U.S. tax day (Apr. 17), your taxes will be more involved than your colleagues’, who only have W-2 forms.
Whether this is your first year self-employed, or you’re an experienced entrepreneur, freelancing comes with a whole new set of tax issues. But you can still find plenty of opportunities to cut your tax bill.

As a sole proprietor, you can deduct a lot of your expenses, such as the cost of a computer, office supplies and work-related travel. You may even be able to deduct your health insurance premiums and part of your rent or mortgage.

Read on to learn more about some of the key deductions available to freelancers, self-employed taxpayers with small or startup businesses, or other sole proprietors.

1. Health Insurance

As part of the Small Business Jobs Act, self-employed taxpayers, including sole proprietors reporting income on Schedule C, may be able to deduct the cost of health insurance for themselves and their families. However, the deduction isn’t available if you were able to participate in an employer-subsidized health plan (either by your employer or spouse’s employer). And this deduction can’t exceed the earned income you collect from your business.

If applicable, take this deduction on Form 1040 Line 29. You can find a Self-Employed Health Insurance Deduction worksheet in the instructions for Form 1040 (scroll down to line 29).

2. Home Office

If you work from home, you may be entitled to deduct a portion of your housing costs. To qualify, you must use part of your home, “exclusively and regularly as your principal place of business,” or “exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business.”

Home office deductions are based on the percentage of your home that is used for business purposes. If you use a spare room (180 sq. ft.) as an office and your home is 1,900 sq. ft., then you can write off 9.5% of certain home expenses, including rent or mortgage payments, insurance (homeowners or renters) and utilities. Direct costs relating to the space, such as repairs or paint, can also be deducted.

Although this deduction is commonly considered a red flag for an IRS audit, if you play by the IRS’s rules and qualify, don’t be afraid to take this legitimate deduction. For a full explanation of the home office deduction, including eligibility and record-keeping requirements, check out IRS Publication 587.

3. Monthly Utilities

If you are taking the home office deduction, you may also deduct a percentage of your heating and electricity bills. You may be able to deduct a portion of your home Internet bill, if you can prove it’s work related.

Of course, if you rent or have purchased a dedicated, out-of-home office, utilities for this space are 100% deductible. Additionally, phones used for business are legitimate self-employed deductions. This includes a second line in your home or a cellphone for business use.

4. Office Supplies

You can deduct the cost of equipment you buy for your business, such as filing cabinets, desk, printers and office supplies like pens and envelopes.

What about your laptop and tablet? If they are used for your freelance or small business, they can be deducted. However, if you only have one laptop and use it partly for business, and partly for personal purposes, you can only deduct the percentage of its business use (e.g. 60% for business). Refer to Publication 535 for more details on business expenses.

 

You can continue reading the article here.

Whatever you decide to do as far as your taxes are concerned and knowing what tax deductions you may qualify for is up to you, but from experience I know getting professional help can save you money and headache in the long-run.

 

 

 

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One Comment »

  • Elnora Macoreno said:

    This is a must read, will be following all of your post for now on!

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