Taxes
For many people, self-employment comes with its share of risks. For example, if you're a sole proprietor, your business assets are considered personal assets (and vice versa) for legal purposes. Plus, you may not have the stability of a steady paycheck nor the benefits that come with an employer-sponsored retirement plan. Enough gloom and doom! Working for yourself can be incredibly freeing, and it allows you to set your path and to be creative. There's no boss breathing down your neck, and your co-workers might be your adorable cats and dogs. Also, there are some considerable tax benefits. Here's a look at some self-employment tax deductions.
Home Office Deduction
Perhaps the most talked-about tax deduction is the one for a home office, but it is fraught with limitations. In fact, this deduction is misunderstood and over calculated. For example: You must use the office ONLY for business. If you fire up the printer in your office every once in a while to run off your favorite knock-knock jokes for personal use, you're technically violating the exclusivity rule. You must do a significant part or all of your business there. For example, if you are a tutor and often drive to meet students at their homes or libraries‚ and you don't use your office except to maybe print and store study materials‚ then you might not qualify for the deduction. On the other hand, if you use the home office to type lesson plans, do administrative work and scout for prospective students to tutor, then the office can likely be considered a principal place of business. Taking the home office deduction used to be complicated, and it can still be. However, the IRS introduced a simplified option that cuts down on the recordkeeping that taxpayers must do.
Vehicle Expenses
One of the benefits for self-employed people is the ability to claim tax deductions for vehicle use. For example, if you are a tutor, keep track of your mileage when driving to tutoring sessions. You'll also have to account for the dates of these trips and their purpose, so try a mileage tracking app. Other vehicle-related expenses you can claim include repairs, insurance, oil changes, registration, and gas. You can also claim partial deductions. Suppose that 50 percent of the time when you drove your car, it was for business use, and your overall car expenses for personal and business use combined are $5,000. You could claim $2,500 in tax deductions or 50 percent of $5,000.
