Tax write-offs for the self-employed

We all know how difficult it can be to be self-employed. Many of the things that employers take care of for their employees are not covered, and people who work for themselves often have to scramble to get by.

The government has tried to make it easier for self-employed people over the years. Recently the tax Cuts and Jobs Act was passed, which revised the tax system significantly and in particular provided changes for self-employed tax deductions.

What has changed?

So, what exactly has changed since this time? And what other potential deductions have been lurking in the background waiting for people to take advantage of them? Well, for one thing, the 2018 legislation provided for a qualified business income deduction for certain classes of business owners. This applies to owners of sole proprietorships, partnerships, S corporations, and some limited liability companies (LLCs).

In the sections below, we will take a look at several other categories of deductions that you might be able to claim if you are self-employed. In each case, you should be careful when determining how relevant the deduction is to you. If you try to claim deductions for work that are actually personal expenses, you will either be denied or punished during the course of an audit.

Self-employment tax deduction

There is a standard tax deduction for the self-employed. This deduction applies to a standard set of taxes, including Medicare and Social Security. The precise rate is 15.3%, with most of this amount going to Social Security, and a small amount to Medicare.

There are thresholds for the amounts that people should take out, however. The maximum depends on your marital status, which could be any of the following:

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of household
  • Widow or widower with a dependent

When it is time to calculate your income tax, you will be able to deduct half of your self-employment tax from your net income. Therefore, the initial numbers that you will see will end up being more favorable in the end. 

Home office deductions

One of the main differences between working for yourself and being part of a larger company is that you don’t have an office to go to. For this reason, self-employed people can deduct home office expenses on their taxes.

There are different components to the home office write-off, including part of your rent, utilities, insurance, and maintenance costs. You should be sure to keep track of these things, though, and declare them honestly. In the event that the IRS audits your taxes, you will be forced to prove the numbers you’ve written.

Phone and Internet

Phone and Internet bills are another thing that the self-employed are forced to cover themselves. Sometimes it can be tricky trying to distinguish the portion of these expenses that you spend on business, rather than personal usage because of course you are using the same lines.

Therefore, it is a good idea to keep track of your working hours and, as closely as possible, how much you use these services for work. You can then enter in a percentage of your bills to this deduction.

Vehicle use

This is another deduction that can have a gray area around it. If you use your car for work, you can deduct the associated costs. However, you will need to have detailed proof of the fact that you used the car for those reasons. This means recording the times that you went on business trips, the amount of time that you were driving, etc.

There are two ways that you can calculate your deduction. One is to use a standard mileage rate, which was $0.65 per mile in 2023. This will save you the hassle of trying to piece together receipts, etc. The other method is to calculate the total cost that you spent on your car in a given year, including maintenance, etc, and include a percentage of that as your deduction.

Meals and other travel expenses

Related deductions are for meals and travel expenses in general. When you travel for work, you will naturally incur costs for meals, lodging, etc. To prove that any travel that you did during a given year was business-related, you should keep detailed records of meetings that you had, times and places where business activity took place, etc. Be sure to include only these costs when you make a travel deduction on your taxes.

Meals should be calculated in a specific way, and you have two options for how to do this. Your meals should be reasonable in nature (don’t go to seven-star restaurants, in other words) and you should have proof that they were for business purposes. You can either deduct 50% of the cost of the meals, or refer to the Standard Meal Allowance that is provided by the IRS.

Business insurance

Part of your insurance will also be allotted to business needs, and for this reason you can make business insurance deductions, as well. Certain aspects of your insurance, such as fire insurance, credit insurance, or business liability insurance can be deducted.

The existence of this deduction is partially an incentive to actually get these types of insurance. It is an unfortunate truth that people sometimes avoid taking this step, and then they end up losing everything they have in the event of a fire or some other catastrophe.

Education expenses

Some forms of education are also work-related. While the government won’t pay for you to send your kids to college, there are certain types of educational expenses that you can claim as deductions.

As with other deductions, if you claim educational expenses, you need to be prepared to prove that they are relevant to your job. There are a lot of training courses available these days that are specifically designed to help people in particular lines of work. Even getting a master’s degree could be relevant, but you need to be prepared to prove this.

Conclusion

Being self-employed is a challenge, there’s no question. But it doesn’t have to be financially overwhelming. The government understands the difficulties involved in working for yourself, and they want to do their part to help you out. It is your job to make sure that whatever you report is fair and honest. Otherwise, you will have real problems to deal with. Accurate reporting has mostly to do with being organized and keeping close track of your business-related records. If you do this, you will be in good shape to be compensated for the things that you deserve.

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