Common Tax Deductions or Self-Employed Write-Offs You Could Claim

Tax deductions are a great way to save money. Self-employed individuals should know about common tax deductions to understand their taxes better. Carefully planning your taxes will help you achieve the business growth you want. 

By the end of this article, you’ll know how tax deductions work. You'll also understand the common tax deductions and some overlooked ones. 

What Are Tax Deductions?

A tax deduction is what lowers your income that is subject to tax. It is what ultimately reduces what you owe. The self-employed have extra costs to cover as business owners. The good news is there are self-employed write-offs that can help during tax season.

Common Tax Deductions

Tax deductions make a big difference in determining how much you owe at the end of every year. You can claim every deduction and credit available as long as you qualify. This is why you need to understand some of your tax deductions. This helps you avoid paying more than you normally should pay.

Common tax deductions and self-employed write-offs include:

Business Costs

Self-employed people and business owners have expenses they can't avoid. Many of these costs can, however, be written off if you're self-employed and use them for business. Some of the costs include: 

• Office supplies: Includes supplies like stationery, printers, shipping materials, and postage. Since they’re only used for work, they are usually deductible the year you buy them.

• Business equipment: You can deduct costs for tools like printers, vehicles, and machines, whether you lease or buy.

• Workplace rent: Your rent payments can also count as business expenses if they are strictly for business use.

• Office furniture: You can deduct items like chairs, desks, and shelves. Especially if you’re just starting out, you can deduct up to $5,000.

Home Office Expenses

You can still apply for some home office tax deductions if you're also working from home. You can claim costs that are only related to your business. Some of them include:

• Utilities: These include utility bills like electricity and water. Depending on how much of your home is used for work, a portion of these expenses can be deductible.

• Internet and phone bills: As long as you use them only for work, they’re deductible. Only the business percentage is deductible if you use it for personal use.

• Property taxes: Your property tax deduction depends on the size of your workspace.

Business Travel Expenses

Travel expenses may be deductible if you travel a lot because of work. This is as long as you meet certain conditions, like if your travel is job-related. Also, you can claim if you travel out of your work area or if the trip lasts longer than a workday.

You're eligible for transportation costs. This includes flights, taxis, buses, trains, and ride expenses. You can also claim your accommodation costs. This includes your hotel fees and other lodging. 50% of unreimbursed meal costs for your travels can be deducted.

Health Insurance 

You can also deduct your health and dental insurance premiums from self-employed write-offs. This can be for yourself, your spouse, and your dependents. This deduction is not itemized; it is usually taken directly from your income. This helps to reduce what you owe significantly.

Retirement Contributions

While saving for retirement, you can still reduce your tax bill. Contributions to retirement accounts, such as IRAs, SEP IRAs, or 401(k) plans, can reduce your taxable income.

Note that the amount you can deduct depends on how much you earn. It also depends on whether you or your spouse can access other retirement plans.

Self-Employed Write-Offs

As a self-employed individual, you are responsible for covering both employer and employee portions of Social Security and Medicare taxes. The total of this is 15.3% of your net income. The IRS, however, allows you to deduct your half (as the employer), which is 7.65% when filing. 

So, if your self-employment tax is $3,500, you could deduct $1,750 from your taxable income. This doesn’t affect your self-employed write-offs. However, it lowers the income used to figure your regular income tax.

Overlooked Tax Deductions

See some overlooked tax deductions you need to know:

Student Loan Interest

Paying off student loans can be a good thing during the tax season. You can deduct up to $2,500 of interest paid on qualifying loans. This only applies to qualified loans you take for yourself, a spouse, or someone who was your dependent when you took the loan.

You’re not eligible for this interest if you’re married but filing separately or if you’re a high-income earner. You’re also not eligible if you and your spouse are claimed as someone else’s dependent. However, you might still get the deduction if your parents helped secure your loan. This is if you’re no longer registered as their dependent.

Tax Benefits for Other Dependents

Not all dependents have to be under 17 to qualify for tax benefits. The Child Tax Credit is meant for kids under 17. However, it can also apply to adult children or older parents. This credit provides up to $500 per eligible dependent.

Charitable Contributions

This applies if you give donations, such as money, furniture, or artwork. This is as long as you’re itemizing the deductions and the charity is registered with the IRS.

You can also claim your expenses while you are volunteering. You might be able to write those off, too. If you had to drive for your volunteer work, you could either deduct your gas cost or 14 cents per mile. Make sure you keep records and receipts of your donations and work.

Helpful Tips To Maximize Your Tax Deductions

Follow these tips to help you fully claim and maximize your taxes:

• Create a Tax List: Tax seasons can be stressful, and you may forget important things to do. Create a tax checklist that includes important dates and filing details.

• Use Different Banks: It's a good idea to keep your business and personal finances separate. You need another bank account for your business to help you easily track income and expenses. You can easily spot your common tax deductions when you file your taxes. This makes you understand your taxes more clearly.

• Keep Accurate Records: You must keep your records and review your expenses regularly. This helps because you don’t have to start looking for receipts and statements during tax season. Make it a habit to organize your records and keep receipts as well.

• Consult a Tax Expert: Using a tax professional can help you maximize your taxes. They know everything that has to do with taxes. They could give advice and give strategies that can potentially help your business.

Final Thoughts

You need to maximize your tax deductions because it helps you save money. This works by reducing the amount you’re to pay for your taxes. Your role is to keep accurate records and organize your documents. This way, you'll be ready when the time comes. 

While you need to keep your record to claim deductions, our tool makes it easy. Our pay stub generator helps you make professional pay stubs and maximize your taxes. It keeps correct records and simplifies the process. Create your business pay stubs with us now!