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:
Vehicle Deductions. Keep a mileage log for all business-related travel. This can also include business-related travel your spouse does on your behalf. When it comes time to total your annual business miles for the IRS’s pre-determined standard mileage rate, vehicle deductions are often overlooked.
Business use of your home. If you use a part of your house regularly and exclusively for business, you can deduct your expenses for that specific part of the home. This is often overlooked by those who work from home and at outside locations. The IRS website states that even if you conduct business at a location outside of your house but still use a part of your home exclusively for employee, patient, or client meetings the home office deduction still applies. To calculate your deduction, map out your home and determine what percentage is used exclusively for work-related activities. Expenses that can be deducted as a percentage of use include mortgage interest, insurance, utilities, repairs, and depreciation. Also, be aware the home office deduction is available to homeowners and renters and applies to all types of structures, including barns, garages, mobile homes, and apartments.
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.
Health Insurance. Are you paying for your family’s health insurance costs out-of-pocket? If so, make sure you are deducting 100 percent 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.
Restaurant Meals. Did you take a friend or colleague out 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 Plans (IRAs) . Most experts agree the single best tax write-off for the self-employed is an individual retirement plan (IRA). This becomes most evident with a Simplified Employee Pension (SEP IRA), which allows the self-employed to contribute the lesser of 25 percent of their income or $50,000. You add funds pre-tax, which significantly lowers your tax base, and then you only pay tax when withdraw money. Plan on leaving the money in the SEP IRA until you reach 59 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.
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