Every worker has to pay income taxes, and self-employed workers are no exception. No one wants to pay more taxes than necessary, however. To get the biggest tax refund possible as a self-employed (or even a partly self-employed) individual, take advantage of all the deductions you have available to you.
You need to pay self-employment tax to cover the portion of Social Security and Medicare taxes normally paid for by a wage or salaried worker's employer. The IRS considers that portion a business expense, however. Consequently, half of your self-employment tax payment is tax-deductible from your net income.
Health Insurance Expenses
If you meet specific criteria, you can deduct all of the following health insurance premiums:
- Health insurance
- Dental insurance
- Qualified long-term care
You can also deduct any health insurance premiums you paid to cover your spouse, children under 27, and dependents.
To qualify for these deductions, you must file as a self-employed individual, have paid your health insurance premiums, and be ineligible to participate in your spouse's employer-provided health care plan.
Other Business Insurance
You can also deduct other insurance premiums, if that insurance is directly related to your business. This may include:
- Credit insurance
- Fire insurance
- Auto insurance for a business vehicle
- Business liability insurance
Home Office Deduction
An intricate yet invaluable tax benefit is a deduction of the cost for using a space consistently and exclusively for business purposes, be it a home you own or a rental unit, as a home office expense. While the IRS generally takes your word for it when you claim this deduction, be ready to show how you arrived at the figures you did in case you get audited. You can prepare for this possibility by making an accurate diagram of the office space.
You can also deduct as part of your home office deduction the business portion of the deductible amounts of the following expenses:
- Property taxes
- Mortgage interest
- Homeowner's insurance
- Home depreciation
- Property taxes
Whether or not you decide to claim a home office deduction, you can still deduct your business-related telephone, internet, and fax expenses. Just be sure, if you use the same phone or computer for both business and personal uses, only to deduct the portions of those bills that you use for business.
Anytime you discuss business while dining out, you can deduct half of your portion of the bill, including any portion you paid for the other person or people present with you, as a business expense. There are certain limits and restrictions, however. If you keep your receipts, you can deduct half of the actual cost, but if you don't keep your receipts, you can only deduct half of the standard meal allowance at that time, and you must still be able to account for the date, time, place and business-related purpose of the meal. Lunches you eat alone in your office do not qualify for any deduction.
If you have to travel for business purposes, you may be able to deduct the following travel-related expenses from your taxable income:
- Transportation costs between your workplace and destination (such as train, bus, or plane fare)
- Transportation costs once at your destination (such as cabs or Ubers around town)
- Meals while traveling for business
To qualify for these deductions, the trip must last longer than one workday, meaning you must spend at least one night there sleeping or resting, and the location must be outside of your "tax home" (i.e., the city where you live and work.) In addition, there must be an explicit business-related purpose for your trip, and that purpose must be planned ahead of the trip. All travel costs except for meals are 100% deductible.
Use of Vehicle
Any type you drive your vehicle for business purposes, you can deduct vehicle expenses. You must keep track of the date, mileage, and reason for each trip, and you'll need to decide between two ways to claim this deduction: either using your actual expenses or the standard mileage rate.
Whether you participate in a certificate or degree program or take a one-time class, training, or workshop, you can deduct the cost of that education from your taxable income. The purpose of the education must be directly related to your existing business, however. For example, you cannot deduct educational expenses to prepare yourself to enter a new job or line or work under this deduction.
Other tax-deductible expenses for self-employed individuals include:
- Subscriptions and publications
- Office-space rent
- Business loan interest (including credit card interest for business purchases)
- Startup costs
- Retirement-plan contributions
As a self-employed worker, a CPA for small businesses can help you navigate all these tax nuances and reap the largest refund available to you. If you live and work in the Charlotte area, you want only the best CPA Charlotte NC helping you maximize your self-employment tax refund. Scott Boyar, CPA, is among the top Charlotte accountants for small businesses, including self-employed individuals. Contact Scott today at 704-527-2725 or visit him online at www.sboyarcpa.com.