12 Self Employed Tax Deductions You’re Not Using (But should be!)
There is something about taking self employed tax deductions that makes small business owners and solopreneurs start shaking in their boots. Maybe it’s the fear of making a mistake. After all, when you work for yourself, there’s nobody else to blame if there is a snafu or two on your return come tax time. But the self employed have some incredible tax opportunities that regular employees don’t get to enjoy. Are you taking all the deductions you could be? Check out what Shoeboxed has to say about our first six self employed tax deductions by clicking here.
Ongoing classes related to your line of work are totally tax deductible! The trick is to make sure your timing is right, and that the class you’re taking is directly related to your business. So cooking classes and pottery workshops are fine – if you’re a professional chef or full time sculptor. If you run a marketing firm, however, those classes wouldn’t cut it.
If you’re starting a new business, you need to be careful about when you beginning claiming education as a deduction. If you’re transitioning from being a ballerina to being a mortgage broker, your How to Be a Mortgage Broker class is deductible until you’ve actually begun your new career.
The self employed have it great when it comes to saving for retirement! Regular employees can only collect $5,000 per year from their employers, but there are no limits on how much you can save when you’re paying yourself. You can defer your own salary and contribute to an IRA or 401(k), and take complete control over your own retirement. Investopedia.com considers self employed retirement plans “the best self employed tax deductions of all.”
Why are travel deductions so confusing? It’s because just about everything you spend money on while you’re traveling for business is tax deductible, but the deductible percentage varies depending on what the expense is. For example, if you’re traveling for a conference, you can deduct 100% of the cost of your airfare, hotel room, taxi or rental car fare, and even the cost of tipping the bellhop.
The tricky part is separating entertainment expenses and meals from the rest of your write offs. Eating out and enjoying various entertainments while traveling on business is tax deductible, but it’s only 50% tax deductible.
For example, let’s say you’re going to Los Angeles on business. The cost of the rental car that you drove from LAX to the Chateau Marmont (in rush hour traffic no less!) is 100% deductible, as is your hotel room. The meal you enjoyed at the hotel restaurant (which is aptly named ‘The Restaurant’) is only 50% deductible. When you saunter down the Sunset Strip to take in a show at the Comedy Store, your tickets are also only 50% deductible.
10. Working from Home
You’re working from home, so your rent and household expenses are 100% deductible, right? Wrong! Home office deductions can be a little bit tricky, so make sure you some measuring tape in hand before reading on.
The first thing you have to do when beginning to claim home office deductions is to measure the space in which you work most often. If you don’t have a physical office but work in the dining room, measure the dining room. You must then determine what percentage of your entire house the dining room constitutes. If your workspace takes up 23% of your house or apartment, you can then deduct 23% of your rent, 23% of your utilities, and 23% of your household maintenance costs on your tax return.
Oh, and don’t forget to measure the bathroom! It counts as usable real estate when determining the size of your workspace.
11. Your Phone Bill
When deducting phone and Internet costs, it’s really important to differentiate between business and personal use. Getting a completely separate phone that’s only used for business calls is a fantastic idea, and will save you a lot of highlighting time come April. With Internet, you need to guestimate how much of your online time is spent performing business related activities (and hey, if you’re a social media marketer, time spent on Facebook certainly counts!)
12. Local Travel
When taking self employed tax deductions for driving, you can either keep crazy-accurate records of what you spent on gas, maintenance, repairs, oil changes, and how many miles you drove; or, you can take the standard deduction offered by the IRS. The second option only requires you to track mileage and the date on which you drove, and multiply it by whatever number the IRS assigns that particular year ($.50/mile, $.60/mile, etc).
Which self employed tax deductions are you unsure about?
photo credit: campusveterinary.com