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Working for yourself makes your taxes more complicated each year, but self employed tax deductions are worth the extra effort. Self employed individuals benefit from workplace deductions just like corporations. As long as you are earning more than you are deducting each year, you can continue to file for more deductions to reduce the cost of operating on your own.
#1 Rent & Mortgage Deductions
Many people are surprised to find out a portion of their mortgage or rent may be tax deductible if they work from home. Large corporations use deductions to help cover the cost of maintaining and office building or warehouse. You can gain similar benefits for yourself. The important thing to remember is you need to have a dedicated workspace that is not used for other activities. Then, you can calculate how much of your home this part constitutes. For example, if your office is 10% of the space in your home, you may be eligible for a deduction of 10% of your rent or mortgage. The same is true of your homeowners insurance expense to insure your office space.
#2 Car Expense Deductions
If you drive a lot for work related activities, you will want to deduct the mileage expense from your taxes. Businesses typically reimburse employees for work mileage, and then they deduct this amount from their corporate taxes. The same benefits are available to self employed persons. Again, you need to calculate how much of your driving is solely for work. You can then deduct this portion from your car payment and your car insurance as well as your mileage. The cost savings can add up quickly for this deduction if you travel frequently for your job.
#3 Medical Deductions
You will need to maintain medical insurance even when you are working for yourself. This can be one of the biggest expenses to any self employed person. Corporations who reimburse for health care deduct this reimbursement from their taxes. This structure is used by business owners everywhere, and you can use the same structure for yourself. The cost for medical insurance is usually around $300 a month for a health individual. You will be able to deduct this expense from your taxes each year if you work from home.
#4 Expense Deductions
Of course, all self employed persons should remember to keep track of business-related expenses and deduct these. You will need to keep your receipts in order to protect yourself in the case of an audit. If you have forgotten to keep a receipt, a credit card record may suffice. Keep receipts for any purchase of an item used solely for business purposes, such as a work computer or desk. You will need to limit your purchases each year to less than your salary. Again, you cannot deduct more than you are making. If you do not make money off of what you are doing, then it is considered a hobby and not a job. Hobbies do not meet tax deduction qualifications.
