Federal Income Tax Deductions for the Self Employed
Taxes, just the thought of the word makes many self employed individuals want to run and hide, but it doesn’t have to be that way if you start out on the right foot. When working for yourself, remembering two simple rules will keep your relationship with Uncle Sam much friendlier. Both of which, will save you precious time in the end.
First and foremost, from day one keep diligent records of everything! If you have records then you have proof in the event that you are chosen for an audit.
Secondly, be honest. If you are honest, not trying to take credits or deductions that you are not eligible for, you will save yourself headaches that could have been easily avoided.
New doors open to possible deductions and credits for your income taxes once you become self employed. There are many more out there but here are a few of the most common write offs for Work at Home Moms.
Licenses & Permits: If you are required by your city, county, or state to hold a license or permit to do business from your home you can write the fees paid for them off as an expense.
Meals & Entertainment: If you have a business meeting over lunch, guess what? You can write part of the cost off as a business expense. Keep in mind that only 50% of your meals and entertainment can be claimed.
Office Supplies: This includes things such as furniture for your office, pens, paper, computer hardware and software. You need to use them solely for the purpose of your work. If, for example, your children use the computer for school work or to play games you can’t write the whole cost of the computer off, just a percentage of it.
Mileage: If a trip is business related you can write the mileage off as an expense on your return. There are two different ways you can deduct this: standard mileage rate or actual expense. Check with the IRS to determine which to use. Keep a small notebook in your vehicle and every time you take a business trip write down the date, place you went, mileage, and how it relates to your business.
Subscription/Membership Fees: Do you receive a magazine/newspaper subscription that you only get because of your job? Do you belong to an organization for your work? If so, you can write these off too!
Professional Fees: Did you pay a resume writer to do your resume for you? That amount, along with any fees paid to an accountant or lawyer, can also be taken as a deduction.
Utilities: Certain utilities may be taken as long as they are for your business. A good example of this is a telephone line that is solely for work purposes.
Advertising: Do you have business cards or flyers? The cost of these items qualifies as a business expense. Don’t forget about car decals or yard signs too!
Business Use of Your Home: This one can be tricky and is different for different types of jobs/businesses. You may be able to write off a portion of your mortgage payment as a business expense if you qualify. See IRS Publication 587: Business Use of Home for further details.
All income and expenses for self employed individuals should be reported on Schedule C Profit & Loss from Business as an attachment to Form 1040. Please keep in mind that not every self employed individual has the right to claim every deduction. This article is not meant to take the place of professional advice. Each job/business is different and you should contact your tax advisor, accountant, or the IRS for further information in regards to your individual situation.
First and foremost, from day one keep diligent records of everything! If you have records then you have proof in the event that you are chosen for an audit.
Secondly, be honest. If you are honest, not trying to take credits or deductions that you are not eligible for, you will save yourself headaches that could have been easily avoided.
New doors open to possible deductions and credits for your income taxes once you become self employed. There are many more out there but here are a few of the most common write offs for Work at Home Moms.
Licenses & Permits: If you are required by your city, county, or state to hold a license or permit to do business from your home you can write the fees paid for them off as an expense.
Meals & Entertainment: If you have a business meeting over lunch, guess what? You can write part of the cost off as a business expense. Keep in mind that only 50% of your meals and entertainment can be claimed.
Office Supplies: This includes things such as furniture for your office, pens, paper, computer hardware and software. You need to use them solely for the purpose of your work. If, for example, your children use the computer for school work or to play games you can’t write the whole cost of the computer off, just a percentage of it.
Mileage: If a trip is business related you can write the mileage off as an expense on your return. There are two different ways you can deduct this: standard mileage rate or actual expense. Check with the IRS to determine which to use. Keep a small notebook in your vehicle and every time you take a business trip write down the date, place you went, mileage, and how it relates to your business.
Subscription/Membership Fees: Do you receive a magazine/newspaper subscription that you only get because of your job? Do you belong to an organization for your work? If so, you can write these off too!
Professional Fees: Did you pay a resume writer to do your resume for you? That amount, along with any fees paid to an accountant or lawyer, can also be taken as a deduction.
Utilities: Certain utilities may be taken as long as they are for your business. A good example of this is a telephone line that is solely for work purposes.
Advertising: Do you have business cards or flyers? The cost of these items qualifies as a business expense. Don’t forget about car decals or yard signs too!
Business Use of Your Home: This one can be tricky and is different for different types of jobs/businesses. You may be able to write off a portion of your mortgage payment as a business expense if you qualify. See IRS Publication 587: Business Use of Home for further details.
All income and expenses for self employed individuals should be reported on Schedule C Profit & Loss from Business as an attachment to Form 1040. Please keep in mind that not every self employed individual has the right to claim every deduction. This article is not meant to take the place of professional advice. Each job/business is different and you should contact your tax advisor, accountant, or the IRS for further information in regards to your individual situation.
posted by Mama Arika at 8:13 AM
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