As a self-employed worker, you live and breathe your job. The line where work begins and ends is rewarding but can often feel like a blur. But you take pride, along with 16 million other workers in the U.S., that you have decided to work for yourself. You might be in work mode more than you'd like sometimes, but when tax season arrives, these sacrifices are rewarded with a series of federal tax deductions. These tax deductions range from health insurance to travel expenses and can significantly lower your tax bill.
Whether you own your own
business, work as a freelancer, or work as an independent contractor, this is a
list of some of the deductions you can claim if you are self-employed:
1. Home office expenses
If you use your home for
work, you can deduct these expenses on your taxes.
Costs such as rent,
mortgage, and property taxes are all considered a federal tax write-off. It's
also possible to claim a deduction on general upkeep and maintenance. This
includes utilities and repairs, but only for the portion of the house that is
considered a home office.
There are two ways to claim this deduction. You can calculate the percentage of your home's square footage used for business and report this amount. Or you can deduct five dollars per square foot of your home that you use for business purposes up to 300 square feet.
2. Health insurance premiums
You might be able to deduct your dental and health insurance premiums on your taxes as long as you meet certain requirements. You might also be able to claim deductions for children under 27, even if they are not dependents.
To claim this deduction,
you must be unable to enroll in a healthcare plan from an employer. For
example, if your spouse is employed and you could be on their healthcare plan,
then you are not eligible to deduct your health insurance costs on your taxes.
You can deduct your
health insurance costs if your business is generating a profit. If your
business is claiming a loss, then it's not possible to claim this tax
Self-employed workers should document health insurance deductions on Form 1040 Schedule 1.
3. Education and professional
Learning and growth are two critical parts of any business venture. Many of the costs associated with keeping your skills sharp and current can be written off as a tax deduction. This includes class, workshop, and tuition fees that self-employed workers spend to remain competitive. The IRS considers this deduction to include anything that "maintains or improves skills needed in your present work."
4. Travel expenses
Self-employed people often have to travel for work, including attending business-related trade fairs and conventions. The Internal Revenue Service allows you to deduct your travel expenses if you are self-employed. This includes your transportation and accommodation costs. Meals are also partially deductible, with the IRS allowing a 50% deduction of business meal and beverage expenses. You must actively engage in business activity for expenses to be considered part of a business trip.
5. Vehicle expenses
If you use your car for work or have to drive regularly to and from meetings or work-related events, you can also claim a tax deduction. Maintenance, repairs, gasoline, and insurance costs are all counted as vehicle expenses. A wide range of expenses are covered under this umbrella, from garage rentals to parking fees.
6. Advertising and marketing
A connected world coupled
with the rise of social media has created an increased need for promotion.
Advertising and marketing expenses for self-employed workers are entirely
tax-deductible. This includes the cost of printing fliers, posters, and other items.
You can also claim digital marketing costs (including the costs of paid social media
7. Phone and Internet
Any costs incurred from
using the phone and the Internet for your business can be claimed as a
deduction. These costs are considered separate from the home office deduction.
You should deduct only the percentage of time you spend online or use your
phone. But if you have a specific phone that you use only for business, 100% of
that cost can be deducted.
8. Retirement plans
Three types of retirement plans are considered tax-deductible for self-employed workers:
- An individual retirement plan, a 401(k), which can be set up if you are self-employed and don't have any employees. The maximum amount you can contribute in 2019 is $56,000 if you are under the age of 50.
- Self-employed people who do have employees can set up SIMPLE. The acronym stands for "savings incentive match plan for employees," and the plan allows employers to make contributions toward their employees’ retirement funds.
- If you have a Simplified Employee Pension (SEP) plan, you can contribute to a traditional individual retirement fund. If an employee has eligible employees, then an equal percentage of their income must also be contributed.
The government is funding
retirement, and a retirement plan is an excellent tax deduction for
(especially for those who are self-employed) can sometimes feel tedious and
complicated, like trying to put together a giant puzzle. If you are
self-employed, you should consider hiring someone to do your taxes for you. They
might even find additional deductions to lower your tax bill. And they are
certified, which means that they are knowledgeable and understand the rapidly
changing landscape of self-employment taxes.