As a self-employed worker, you can set your schedule and be your own boss. However, with this freedom comes the responsibility of managing your taxes. Self-employed workers are responsible for paying their own taxes, as they do not have taxes taken from their paychecks.
But don't worry, being self-employed also comes with its own set of tax benefits. This blog will discuss the top tax deductions for self-employed individuals. These deductions can help you save money on your taxes.
What Are Tax Write-Offs?
Before discussing specific tax write-offs for self-employed workers, let's define a tax write-off. A tax write-off, or tax deduction, allows you to subtract an expense from your taxable income. Thus, your tax write-offs will reduce the money you owe in taxes.
If you earned $50,000 in income and had $10,000 in tax write-offs, you would only pay tax on $40,000 of your income. This can result in significant tax savings for self-employed workers.
Home Office Expenses
Home office expenses are among the most common tax write-offs for self-employed workers. If you work from home, you can deduct a portion of your rent or mortgage, utilities, and other home-related expenses as a business expense.
You only need a specific space in your home for work to get this tax deduction. This space can function as a separate room or area as long as it is solely used for work.
You can deduct home office expenses based on the percentage of your home used for business. For example, if your home office is 10% of your home, you can deduct 10% of your rent, utilities, and other home expenses.
Business Supplies and Equipment
You will likely have certain supplies and equipment necessary for your business. These include office essentials, applications, and devices like PCs, printing machines, and telephones.
You can deduct these expenses as business expenses on your taxes. Please keep track of all your business-related purchases throughout the year so you can accurately report them on your tax return.
Travel Expenses
If your business requires you to travel, you can deduct certain travel expenses from your taxes. This can include airfare, hotel stays, rental cars, and meals while you are away on business.
To qualify for this tax write-off, the travel must be necessary for your business and not for personal reasons.
Health Insurance
Self-employed workers are responsible for getting health insurance. The good news is that you can deduct your health insurance premiums as a business expense on your taxes. This can help you save money should you incur a significant expense.
Retirement Contributions
Self-employed workers can't get retirement plans from employers but can still save for retirement and get tax benefits. You can subtract the money you put into a traditional IRA or solo 401(k) from your taxes as a business cost.
This helps you save for retirement and lowers your taxable income, leading to possible tax savings.
Advertising and Marketing Expenses
Generally, self-employed people can deduct advertising costs. The IRS considers advertising and marketing expenses ordinary and necessary business expenses, making them deductible on their tax returns.
Here are some things to keep in mind:
- The advertising expense must be ordinary - common and accepted in your industry.
- The advertising expense must be necessary - meaning helpful and appropriate for your business to grow.
- You should keep good records of your advertising costs, such as receipts and invoices.
This can include website design, social media advertising, and print or digital ads.
Professional Services
Professional services are sometimes needed to help you with your business and can be deducted as business expenses on your taxes.
Examples of deductible professional services for self-employed individuals include:
- Accounting and bookkeeping services
- Legal fees related to your business (not personal legal matters)
- Consulting fees for business advice or expertise
- Fees paid to business development professionals
- Subscriptions to professional publications relevant to your field
Education and Training Expenses
Educational and training tools, like conferences, workshops, and online courses, can be deducted as business expenses. Ensure you track all associated expenses, receipts, and subscriptions.
Business Insurance Premiums
Business insurance, such as liability insurance, professional liability insurance, and business property insurance, can be deducted as business expenses on your taxes. The deduction applies only to premiums you're filing for in the tax year. You should keep all your insurance-related receipts and invoices for tax record purposes.
Tax Preparation Fees
You may need to hire a tax professional to help you prepare your taxes, and these fees are deductible. This may include charges for tax software, services, and other filing costs.
Conclusion
As a self-employed worker, managing your taxes can seem overwhelming. However, taking advantage of tax write-offs can save money and reduce your tax burden.
Track all your business expenses each year so you can report them correctly on your tax return. If you work for yourself, don't hesitate to ask a tax expert for help on how to save money on taxes.
This blog is not intended to and does not constitute legal advice or financial / investment / tax advice. North American Savings Bank does not make any guarantee or other promise as to the results obtained. The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.
