Tax season is right around the corner, and deductions are generally top-of-mind for most filers. However, reporting your business income and expenses can create an additional layer of complication if you’re self-employed.
The good news is that your expenses as a self-employed individual can often bring down your taxable income. Here’s a closer look at some of the most common self-employed tax deductions.
Please be sure to talk with your CPA or a tax professional so that they can advise on which deductions apply to you based on your unique situation.
Your Home Office:
Did you know that you can deduct any portion of your home that you use regularly and exclusively for work? There are two ways to determine what you can deduct: the Simplified Method (standard deduction) and the Regular Method (itemized). The Simplified Method is much easier to use; however, the stipulations result in a maximized deduction of $1,500. On the other hand, the Regular Method is much more involved and will require you to keep receipts and itemize your expenses.
Internet & Phone Bills:
This can be tricky if you work from home because the government wants you to deduct the portion you use for your business. But you may be able to deduct the money you pay for internet and phone bills while working from a home office.
Your Car:
If you use your car as part of your business, you may be able to deduct the use on your tax return. There are two methods to calculate this deduction as your home office: Standard Mileage Rate and the Actual Expense Method.
Training Expenses:
If you have participated in online training or a seminar that is pertinent to your business, you may be able to deduct those training expenses. Classes or training must be work-related, but you may be able to write off the cost of books, supplies, materials, fees, tuition, and more.
Business Meals:
Business meals may be tax-deductible when meeting with a client or attending a business-related conference. Remember that your meals shouldn’t be over-the-top and should be within reason. For 2021, business meals are 100% deductible; however, that rate will expire at the end of 2022.
Retirement Savings:
There are various types specific to those who are self-employed or are business owners, and they will allow you to deduct your contributions. Simplified Employee Pension (SEP) IRAs, Simple IRAs, and a Solo 401(k) may be options worth exploring.
These are just a few of the most common tax deductions that self-employed people can take advantage of each year, but there are many more. Your best course of action is to reach out to your tax professional or CPA to confirm which self-employed tax deductions apply to your situation.
We aren’t tax experts, but we are escrow experts who are here to support you! So if we can be of service, please get in touch today.