There are several benefits and a few disadvantages for people that work for themselves, otherwise known as freelancers, independent contractors, or small business owners.
The IRS is not particularly kind to self employed individuals. The self employment tax rate is high (currently 15.3 percent) and most definitely penalizes those that pay back Social Security and Medicare in quarterly taxes or at the end of the year.
The biggest advantage self employed earners have is the ability to claim more deductions than your typical taxpayer. Sadly, according to one report nearly three-quarters of freelancers fail to claim a single deduction on their yearly returns. Considering the high self employment rate, that is far too many individuals that end up paying more on taxes than they deserve.
As a result, it is important to make yourself aware of the many different deductions you can claim if you work self-employed for the best tax help advice.
There is no question about it that self-employed earners take on more risks and costs than your average employee. Therefore, legislators have attempted to work with and support freelancers by writing in numerous lines of tax code to help soften the blow of doing business as a self-employed worker.
The Tax Cuts and Jobs Act goes into effect this year, and it did eliminate a few self-employed tax deductions yet there are still many that you can claim. Therefore, it has never been more important to claim every single business tax deduction you qualify for in order to reduce your tax burden.
Speaking with a licensed, experienced tax professional can help you with these crucial steps. The ultimate goal is to minimize costs while maximizing your resources.
The IRS really hammers self-employed individuals with an over 15 percent tax rate on their income. However, you can deduct half of the self-employment tax from your net income.
Why? The IRS treats the “employer” portion of the self-employment tax as a business expense and allows freelancers to deduct it accordingly. What’s even better about the deduction is it only impacts your net income, not your gross business income. It definitely makes a huge difference.
Even if you work from home you naturally have a place where you conduct your business. The U.S. government has established assistance to help self-employed workers cover expenses related to their office.
So, even if you work from home, if the space you use for business (like a spare bedroom) is 100 percent used for that purpose, you are entitled to deduct expenses related to that space. It includes a portion of the rent/mortgage, utilities, internet bill, phone bill, insurance, property tax, and office supplies.
While the home office deduction is very resourceful, it is also one of the more complex to understand and apply correctly. It basically operates on the principle of an honor system. However, in the event of an audit the IRS may seek to verify these office deductions so transparency is important.
If you are self-employed and pay your own health insurance premiums, and were not able to participate in a plan through your spouse’s employer – you can deduct all of your health, dental, and qualified long-term care insurance premiums from your taxes. The rule also extends to cover a spouse, dependents, or children under 27 (even if they aren’t your dependents) if under the same health insurance.
Did you know that a meal is considered tax-deductible in the eyes of the IRS so long as it’s related to your business? It could include everything from meals you have while traveling for business, or entertaining a client. The same is true of other travel expenses like lodging, car rentals, and airfare. Mileage used on a personal vehicle for business purposes can also get claimed.
There are restrictions and several different qualifications that make these expenses appropriate for tax deductions. Therefore, it is vital that you keep complete and accurate records and receipts regarding these transactions. If you are uncertain, it is a good idea to contact an accountant or tax specialist.
The U.S. government does reward self-employed workers that would like to further their education related to the field of employment. The IRS supports deductions so long as they are related to “maintaining or improving your skills” for an existing business. You cannot claim an educational tax deduction in order to pursue a new line of work.
There are other business related expenses that you can claim including interest on business loans, publications and subscriptions related to the business, advertising, business insurance, retirement contributions and other startup costs.
It is important to note that this is only a basic overview of the types of deductions you can claim. There are several qualifications and specifics related to each of the aforementioned deductions. We could dedicate an entire article to each subject in order to explain the specifics of what may or may not qualify, as well as how to properly calculate.Get tax help! Consulting with a professional is highly advisable. Learn more about what we can do for your self-employed business by visiting www.www.levytaxhelp.com.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.