Tax time can most definitely be a time of stress and consternation for the self-employed gigger. Fully understanding the responsibilities, liabilities and benefits of being self-employed can make a huge difference in the overall profitability of the business.
Knowing more specifically what can be a considered a tax write-off is often a big step forward for a self-employed businessperson to breathe a little easier when it is time to file.
Here are a few deductions that might get you thinking about your own situation:
- Health insurance premiums: The self-employed often have to have their own health insurance, which may cost quite a bit to secure annually. However, these costs can often be fully deductible on taxes.
- Education costs: Even if you are not a college student, there are often ways to write off the costs of ongoing education, post high school. Your income level will play a part here, so mileage may vary.
- Business related travel: Sure, if you’re an Uber of Lyft driver you’d know your mileage is deductible – but did you know you can write off trips to the post office? A mileage log that details business travel can help you receive some relief.
- Child and dependent care: Depending on your specifics, you may be able to deduct some of the childcare costs related to sitters hired, allowing you to work. If you care for an older spouse or loved one, it also might be considered as a deduction here.
- Home office deduction: The main thing to keep in mind here, is that your office space needs to be dedicated 100% to your business, or it cannot qualify for the deduction.
- Retirement savings: A self-employed individual can take advantage of some great tax breaks on contributing to a retirement plan, like a 401(k). You should maximize this benefit.
- Your car: There may be some tax advantage to claim regarding your car, depending on how much you use it for business-specific purposes. If you claim mileage, you cannot also claim itemized depreciation on the car – so evaluating which one offers you the best benefit, helps.
- Earned income tax credit (EITC): Statistics suggest that many people able to receive the EITC fail to claim it. This can be particularly important to individuals who have lower to moderate income levels. Turbo Tax offers more insight on EITC, here: https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/5-facts-about-the-earned-income-tax-credit/L6YfN8sCL
- Charitable contributions: Again, it may be obvious to deduct larger contributions, but it is important to consider smaller items as well. Things like postage used for a fundraiser, the food made for a soup kitchen, and mileage to get to a donation spot might all have tax value.
- Student loan payments: If you are not claimed as a dependent by someone else, you may be able to claim some of your student loan payments as a deduction. Even if someone else pays back your loan, it may be a deduction you can claim on your taxes.
- Business loan interest: If you have taken out a loan for a specific business purpose, the interest you paid may be deductible. Rules and restrictions will apply, of course.
In general, a deduction claimed for a business expense is going to need to be defensible as having a clear and distinct business purpose. Supporting documentation, in the form of receipts saved and/or logs maintained, are often necessary or recommended by experts as well.
Because of the impact each tax decision will have upon you and your business, it is highly recommended that you seek professional guidance when needed. Many people are confident to file tax returns on their own, however, a tax or accounting professional can many times suggest greater ways to save and protect your income.