If you are self employed, you know that you need all of the tax write offs you can get at tax time. The self employed entrepreneur will be required to pay federal and state income taxes. By maximizing your deductions, you can keep a little more of that hard earned income.
The Home Office Deduction
If you work out of your home, you may be able to deduct some of the costs associated with your home office. In order to use this deduction, you are required to use your office exclusively for work. A corner in your family room does not count. The deductions are based on the size of your office and the percentage of your home that is occupied by your office.
For example, if your office is fifteen percent of your total home square footage, then you can deduct fifteen percent of your water bill, gas bill, repairs, interest, cleaning costs, etc.
Being self employed doesn't mean you can't reap the tax benefits of making IRA contributions because you can write off deposits you make to your self employed IRA. This amount can be used for your retirement savings account.
Health Insurance Premiums
Health insurance premiums are tax deductible, as long as you aren't eligible for insurance through another employer or your spouse.
How much gas can the self-employed write off?
A self-employed individual can obtain tax write offs for gas costs if they pertain directly to the business itself. As a general rule, only those costs that are incurred in immediate relation to business activities are deductible. So, if a self-employed individual puts $30 of gas in a car and runs 50 percent personal errands and 50 percent business errands on that gas, then only $15 would be deductible. It is essential to track business mileage in a mileage log to verify these estimates. The individual can continue to write off gas as long as his or her total write offs do not exceed income. In this case, the activity would be considered a hobby and not a business.