You Could be Losing $12,000 — You May Qualify for These Tax Write Offs
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Filing your self employment taxes? You could be unknowingly throwing away thousands of dollars. You could be paying thousands more in self employment income taxes than you need to. Taxpayers like yourself can save an average of $12,000 on their self employment income taxes by these utilizing self employed tax deductions and write offs to reduce their taxable income.
A Quick Note
I am not a CPA or a professional tax preparer — the information is coming directly from either the IRS or from 1800-Accountant.
What are tax deductions?
Tax deductions work by reducing your taxable income and therefore lowering your taxes overall — they exempt portions of your income from being taxed. In order to write off your expenses, the IRS has a few requirements in order for those expense to qualify as a deduction.
Your expenses have to be relatively normal to your industry and they must clearly be in support of your business’s fundamental operations. You also must be able to provide adequate documentation of these expenses if you ever need to prove that they actually work for your business.
Tax Deductions
1. Self Employment Tax Deduction
As a self employed individual, you are subject to paying self employment taxes, which equates to 15.3%. This amount pays for your portion of Medicare and Social Security. If you were traditionally employed, then your employer’s payroll would take care of that expense, but since you are self employed, you must pay it. Fortunately, you can claim a deduction on half of that self employment tax amount — 7.65% of your self employment taxes can be deducted.
2. Operating Costs
Anything you need to keep your business in operation can be written off as a tax deduction.
3. Labor
Any employee payroll, contractor labor wages, bonuses, or commissions are all deductible.
4. Professional Fees + Services
If you hired a lawyer, an accountant, or some other type of professional to work with you in your business, then those fees are tax deductible.This also applies to fees that you might pay for a membership or a subscription — these are deductible as well.
5. Home Office
In order to qualify for a home office deduction, you cannot simply work anywhere around your house in a communal space and claim it as a home office. You must have a dedicated space that is used only for business and is the primary place where you conduct your business. If you are eligible for this deduction, you can then claim a portion of all of your home related costs as business expenses.
6. Depreciation of Property
If you have purchased a large investment in terms of business property, you shouldn’t necessarily deduct the cost of the whole investment right away. You can deduct the depreciation of value over time.
7. Marketing and Advertising
If your business is spending anything for marketing or advertising, such as creating business cards, social media ads, SEO services, influencer marketing, or a variety of other things that would fall under this category, then it is deductible.
8. Organizational Expenses
Anything you need to organize and establish your business can be counted as a deduction.
9. Internet and Phone Expenses
1800-Accountant states that if you use a home office or a personal phone that you also use for business costs, you are allowed to deduct a fraction of the total cost based on an estimate of your relative business use. If you have a dedicated phone or internet service plan that is used only for businesses, then you can deduct the full cost.
10. Building Costs
If you rent or lease a space that is dedicated for your business, then you are able to deduct that expense. In addition to deducting the rent, you can also deduct anything that is associated with maintaining or operating that space, such as utilities, repairs, or insurance.
11. Business Travel and Transportation
As long as your trip is intended entirely for business purposes, then every expense incurred on that trip outside of your regular area is tax deductible.
12. Vehicle Usage
Even if you own a personal vehicle and you are utilizing it partially for business, you can still deduct those partial expenses on your tax return. Document your mileage when you use the vehicle for business purposes, and claim a deduction based on that specific mileage. It should be noted that this does not include travel to and from your office and residence.
13. Professional Education
If you underwent any courses, developments, or any seminars that led to the development of your business — or yourself as a business owner — then those are tax deductible.
14. Insurance + Permits
You are also able to deduct things such as your insurances, your taxes, your licenses, and your permits. These are necessary costs associated with the operation of your business.
15. Banking and Transition Costs
If you are holding money in a bank and you receive charges for that bank, or you’re collecting money and having to pay a fee for the service you use, you are able to classify that as a deduction.
16. Meal Deductions
It is important to note that this does not mean that you can deduct your lunch every day from simply working and needing to eat. This applies if you are specifically taking your clients out to a meal, or if you’re bringing food back into your business to be consumed by your employees. Generally meals are 50% deductible, but there are a few meal related costs that can be 100% deductible. In order to be 100% deductible, it must be food or entertainment provided as part of a party for the entire company at once, or it must be something officially included as compensation for your employees.
17. Retirement Contributions
The amount that you are able to contribute to your retirement account depends on what type of retirement plan you currently have set up — but the contributions you make are tax deductible. 1800-Accountant recommends that it would be a smart idea to max out your deductible retirement contributions before the end of each year, especially if you are likely to find yourself in a higher income tax bracket. This allows you to defer paying taxes on that income until you withdraw that money at a later date.
18. Self Employed Sick Leave for 2021
If you were self employed during the pandemic and had to take time off work due to illness, you may qualify for an up to $5,000 deduction based on pandemic related requirements. You can learn more about that here.
Need assistance with you taxes? 1800-Accountant can help! Click here to learn more.
Want to learn more about self employment tax deductions? Watch the video here!
Sources
https://1800accountant.com/blog/small-business-tax-deductions-checklist
https://1800accountant.com/blog/self-employed-tax-write-offs
https://1800accountant.com/blog/self-employment-tax-2
https://www.irs.gov/taxtopics/tc510
https://www.irs.gov/publications/p946
