Seven Tax Tips for the Self-Employed

Ah, the joys of being self-employed, going to work in your home office in your pajamas, with nary a boss or employee to deal with.

Some self-employeds fit that image, while other small business owners have formal offices and employees and infrastructure. But whichever business model is yours, TurboTax can help you file your taxes.

Here are seven tax tips to help you cope as the tax deadline approaches:

1.  Take a deduction for your home office. Many business owners shy away from the home office deduction because they are  afraid they will be audited. But deducting a home office won’t cause an audit, as long as the home office is helpful and appropriate for your business. It must be a space that is used only for business, but it doesn’t have to be a full room.

So if you have a corner of the living room that’s used exclusively and regularly for an office, by all means, take the deduction for home-related expenses such as rent, mortgage, insurance, utilities, repairs and maintenance and the like.  Beginning in 2013, the IRS now allows you to take a Simplified Home Office Deduction to reduce record keeping.  You are allowed a flat tax deduction up to $1,500 based on $5 per square foot for up to 300 square feet.  TurboTax walks you through both methods.

2.  Deduct equipment and supplies you use. If you use a computer for business you can take a deduction in the year you purchase it. But remember, it has to be used  exclusively for business. If it is the only computer in the house and the kids use it for homework, a deduction isn’t appropriate. Deduct all other equipment and supplies you use for the business – make the effort to keep the receipts and add them up at tax-time. If you toss a $10 receipt in the trash, it’s like throwing away 4 dollar bills, and you wouldn’t do that, would you?

3.  Let Uncle Sam pay part of your auto costs. If you use your vehicle for business, take a tax deduction for the mileage at 56.5 cents per mile. But be sure you keep records: a listing or daily calendar in which you jot down the mileage and purpose of the trip is sufficient. Commuting costs aren’t deductible, so the mileage from your home to your normal place of business isn’t deductible. If your office is at home, you’re in luck, since your mileage is deductible from your garage door to your business destination and back again.

4.  Your meals may be deductible. The costs of business meals are deductible, as are the costs of meals while you are traveling on business, though you are allowed to write off only 50% of the total costs. Again, record-keeping is key – keep a list or diary of the expenses and business purposes of the meals and keep your receipts. Lodging and other travel expenses while away on business are also deductible, so keep track of all your travel-related costs.

5.  Contribute to retirement plans. A huge benefit of being self employed is having an array of retirement plans available to you. The simplest is the IRA, but you are limited to contributing $5,500 plus another $1000 if you are 50 or older. An alternative is the SIMPLE: You can contribute up to $12,000 to a SIMPLE plan, plus another $2,500 if you are 50 or older. Or if you want to make greater tax-deductible contributions, you can set up a SEP-IRA and contribute up to 25% of your salary to $51,000. If you have no employees you can create an individual 401(k) and contribute up to $17,500 ($23,000 if age 50+).

6.  Hire your kids. If your children are old enough to work in your business, they can do jobs such as filing, computer input, distributing flyers, etc., then you can pay them for their labor and take a deduction. Since they are working for you, there isn’t any social security tax on their wages if they are 17 or younger and your business isn’t incorporated. And they can earn up to $6,100 without having to file a tax return. Even if they save the money for college or contribute it to a Roth IRA, you’ll get the deduction, so it is a great way to benefit your child’s future while decreasing your tax liability.

7.  Deduct your health insurance. If you are self-employed and paying for your own health insurance, that insurance is fully deductible on your tax return, as are the costs for your dependents’ insurance coverage.

Running a small business may be complicated, but with a little advance planning you can make the most of the tax benefits. TurboTax will walk you through your self-employment income and tax deductions to make sure you get back every dollar you deserve.

3 responses to “Seven Tax Tips for the Self-Employed”

1. 

   HELP I AM DOING THE TURBO TAX FREEDOM OUR ADJUSTED GROSS IS UNDER 4,000.(TOTAL INCOME 23,000.) THAT HAVING BEEN SAID I AM ELIGIBLE FOR A TAX CREDIT ON MY HEALTH INSURANCE BECAUSE I PAID WITH MY SELF EMPLOYMENT INCOME ….BUT IT SAYS i NEED TO LINK MY 1095A TO MY SELF EMPLOYMENT INCOME…….Not sure how to do that because it will not let me file my takes it keeps taking me to schedule A AN ERROR THAT WANTS ME TO PUT AN AMOUNT THERE AND SAYS TP ALLOWABLE LTC CAN NOT BE GREATER THAN MY SPOUSES WHICH IS SHOWING -802. mY HUSBAND ONLY HAS MEDICARE AND SSA. i HAVE BEEN DOING TURBO TAX FOR 10 YEARS NOW AND THIS IS THE 1ST ISSUE i HAVE HAD i CANT DO ANYTHING WHERE DO i GET HELP WITH THIS TURBO TAX ISSUE??

   Reply
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     Hi Lisa,
     It would be best to call our customer care so that they can walk you through https://turbotax.intuit.com/taxfreedom/support/contact
     Thank you,
     Lisa Greene-Lewis

     Reply
2. 

   Great info. Thank you. One question – do these same rules apply to an independent contractor working as a caregiver at home?

   Reply