6 easy-to-miss tax breaks for the self-employed
Save receipts and keep good records so you can get all the deductions you're entitled to, for mileage, home office use and other expenses.
This post is by Kyle James at U.S. News & World Report.
If you’re self-employed, are you getting all the tax write-offs you’re entitled to? With the rising costs of doing business and the high costs of securing your own health insurance, it’s important that you analyze your business expenses to ensure you’re receiving all possible tax deductions. Your hard work and will to overcome the risks accompanying self-employment have earned the right to deduct these expenses. Here
are several that are frequently overlooked:
Keep a mileage log for all business-related travel. This can also include travel your spouse does on your behalf. When it comes time to total your annual business miles for the IRS’ pre-determined standard mileage rate, vehicle deductions are often overlooked.
Business use of your home
There are a number of missed opportunities for deductions when analyzing your home office space. To avoid them, you’ll first want to map out your home and determine what percentage of your home is used for work-related activities. If, for example, you determine that 20% of the home’s square footage is used for business, you get to write off 20% of your utility bills, Internet costs, mortgage or rent, property tax, homeowners insurance and home maintenance. Many people forget to include the square footage of the bathroom and any areas you consider "break areas."
Educational or training expenses
Have you taken any classes or workshops that have added value to your business and expertise? If so, make sure you are deducting all related costs, such as fees, books and travel expenses. Also, don’t forget research material, including magazine and newspaper subscriptions.
Are you paying for your family’s health insurance costs out of pocket? If so, make sure you are deducting 100% of your premiums as an adjustment to your business income. The Small Business Jobs Act of 2010 approves this write-off for you, your spouse and all dependents.
Did you take a friend or colleague to lunch last year and talk business? If so, that meal just became a meeting, and the costs associated with it are a business write-off. Don’t dismiss these expenses -- and subsequent write-offs -- by thinking they’re not important to business development.
Individual retirement accounts
Most experts agree the single best tax write-off for the self-employed is an IRA. This becomes most evident with a Simplified Employee Pension (SEP) IRA, which allows the self-employed to contribute the lesser of 25% of income or $50,000. You add funds pretax, which significantly lowers your tax base, and then you pay tax only when you withdraw money. Plan on leaving the money in the SEP IRA until you reach 59 1/2 to avoid early withdrawal fees. In terms of tax savings, you are essentially letting the government fund a large portion of your retirement.
The bottom line: The key to all of these write-offs is keeping receipts and documenting all expenses, so you’re prepared in the case the IRS comes knocking on your door for an audit. Do that and you’ll sleep easy knowing you got all the write-offs you deserve and have evidence to back up your claims.
More from U.S. News & World Report and MSN Money:
VIDEO ON MSN MONEY
The place I used to go to get my taxes done was a 2 car garage that was built into an
office.A lot of small businesses got their taxes done and you could hear everybodies business.
They all lied and cheated on their taxes.Of course, some had to cheat to stay in
business.My business got bigger and I got a more private place to get taxes done.
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