Seven Tax Tips for the Self-Employed

Self-employment comes with a different set of tax considerations than traditional employment. Here are seven tax tips to consider as you prepare for tax season.

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, if it isn’t  used exclusively for business, you can only deduct the business-use percentage of the cost. Deduct all other supplies you use for the business, too. Make the effort to keep the receipts and add them up at tax-time. If you toss a $10 receipt in the trash, you’re tossing away the tax savings that receipt would’ve been worth, often 25 to 40 cents on the dollar. Do that all year, and it adds up. 

3. Deduct auto costs

If you use your vehicle for business, you can take a tax deduction for the mileage. For tax year 2026, you can deduct 72.5 cents per mile through June 30 and 76 cents per mile from July 1 onward. 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. Deduct business meals

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 $7,500 plus another $1,100 if you are 50 or older. An alternative is the SIMPLE: You can contribute up to $17,000 to a SIMPLE plan, plus another $4,00 if you are 50 or older or $5,250 for employees aged 60, 61, 62, 63. If you want to make a greater tax-deductible contribution, you can set up a SEP-IRA and contribute the smaller of 25% of your salary, or  $72,000. If you have no employees you can create an individual 401(k) and contribute up to $24,500.

6. Hire your kids

If your children are old enough to work in your business, you can hire them to do some filing, computer input, or other simple tasks around the office. Not only do they get paid for their labor, you also get a tax 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 is a sole proprietorship or partnership where every partner is the child’s parent.

Whether they save the money for college or contribute it to a Roth IRA, you’ll get the deduction either way. It’s 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.