There’s a big difference between not paying your taxes and avoiding unnecessary taxation — especially when you’re self-employed. Knowing what you can legally deduct from your self-employment taxes can save you hundreds — even thousands — of your hard-earned dollars.
What are some of the top deductions people miss when they’re new to self-employment? Consider these:
- Your home office: If you have a room that you use “exclusively and regularly” for work, you can opt for either a standard deduction calculated on the space’s square footage or you can calculate the exact percentage of your mortgage, rent, utility bills and other household expenses used to maintain that space.
- Your continuing education: Have you taken some classes that help you manage the books, or classes designed to help you improve the skills you use in your business? If so, those may be deductible expenses.
- Your travel costs: How much do you use your car for your business? Whether you’re driving to meet clients or making deliveries, you may rack up some miles — and those may be deductible as long as you track them.
- Your business insurance premiums: Risk management is a big part of any business, and that brings certain costs. If you make premium payments to cover losses with your business, your equipment or employee health and accident claims, you may be able to deduct those costs.
- Your self-employment taxes: Self-employment tax isn’t the same as your income tax. If you’ve paid your self-employment tax during the year properly, roughly half of that can be deducted later on your 1040.
Understanding all of your options — and knowing what mistakes can trigger a tax audit, helps you maximize your income potential with any business. It’s often wisest to seek some experienced assistance with your operation so that you don’t make major mistakes.