All self-employed people are required to pay a set of taxes known as the self-employment tax. Self-employed people, freelancers, and small business owners are all included. Being your own boss and having to pay additional taxes is not enjoyable. The good news is that you can reduce your self-employment tax obligation by deducting half of your self-employment tax from your net income when figuring your income tax. According to the Internal Revenue Service (IRS), the employer component of self-employment tax is a legitimate business expense that can be written off.
Home Office Deduction
Whether you own it or rent a workplace, you can write off the expense of any area you regularly use solely for work. Although you may essentially operate on the assumption that the IRS won’t audit you, you should be ready to defend your deduction in that event. Assume you’ll need to provide this data to verify a deduction that’s based on the size of your workspace. Drawing a diagram of your workplace with exact measurements is one approach in that situation.
The deduction for phone and internet bills
Whether or not you claim the home office deduction, you can write off the business part of your phone, fax, and Internet costs. The secret is to only deduct costs that are specifically related to your business. For instance, you could write off the costs associated with maintaining an online store. The monthly charge shouldn’t be subtracted if you only have one phone line for personal and business use.
Lunch is a tax-deductible business expense when it is used for professional travel, conferences, or client entertaining. If you keep your receipts, you can only deduct 50% of the actual cost of the meal or 50% of the usual meal allowance if you keep track of the date, location, and intended use of your travel for business purposes but not your actual meal receipts. In these instances, the meal cannot be expensive. Consequently, the desk meal is not a legitimate business expense that can be written off.
Any education-related expenses that you want to deduct must be necessary to maintain or improve your current business skills. There are no tax breaks available for taking classes to advance your job. A training on real estate investment analysis to refresh your knowledge is tax deductible for real estate consultants, but a workshop on how to instruct yoga is not.
It’s worth mentioning that freelancers, or 1099 employees, need to know about certain tax forms. All itemized deductions get recorded on Schedule C of Form 1040. You will calculate your estimated taxes using Form 1040 ES. It’s important to follow your tax bracket when completing your tax forms.
Despite the fact that most self-employment tax deductions are more complex than this succinct overview suggests—after all, it is the United States Tax Code—you now have a good grasp of the foundations. However, they are the most significant deductions that can be made. Office supplies, credit card processing fees, tax preparation fees, and maintenance and repair costs for equipment and real estate used for company purposes are all deductible expenses. However, you can deduct a little amount each year over time for other business expenses that can be amortized or depreciated. If you want to automate finding deductions, an app like FlyFin can do just that. No more saving receipts, making your life easier!