People who are self-employed know the pain of paying high annual taxes to the IRS. In addition to the quarterly estimated payments most of these individuals pay, they often wind up owing after completing their annual tax forms. However, there are several deductions most work-at-home individuals do not know about. The following three suggestions shed some light on the best deductions to consider.
1. Insurance Costs
Many aspects of life require insurance. Owning a home, going to the doctor and driving a car are three things that are necessities for most people. Although employees may not qualify for many tax breaks based on insurance, self-employed individuals may qualify for the following benefits.
- Health Insurance Costs – Self-employed individuals who pay for their own health insurance are allowed to deduct the cost of that coverage on their taxes.
- Home Insurance – If individuals use a portion of their home specifically for business purposes, a percentage of home insurance can also be written off. In addition to this, a portion of theft insurance or any other coverage that includes the business area can be deducted.
- Auto Insurance – Many self-employed individuals use their vehicles for business purposes. Determine what percentage of the vehicle use is for business, and deduct the correlating percentage from the premium amount.
There are several other insurance costs that can be deducted. For example, travel insurance for a business-related trip qualifies. Retirement plan contributions can also be written off.
2. Home Expenses
Although they are subject to the self-employment tax, individuals who work at home have the advantage of writing off several home expenses.
- Utility Bills – Figure out what percentage of the home is used for business purposes, and match that percentage to the utility bills. Internet bills, phone bills and any other monthly obligations should be reviewed.
- Mortgage Payments – A percentage of the mortgage payment that is equal to the percentage of the home used for business purposes can be deducted on income tax forms.
- Home Repairs – If the area of the home used only for business must undergo repairs, write off the amount. Some types of repairs may impair the homeowner’s ability to conduct business. If this is the case, ask a tax professional about deducting lost business expenses.
3. Necessary Purchases
When considering what purchases are necessary for business, always use common sense. Never deduct a purchase that is not used solely for business purposes. However, portions of some major purchases may be deducted.
- Electronic Equipment – Computers, printers, fax machines, phones and other electronic gadgets purchased for the business can be deducted. If they are also for personal use, only deduct the percentage of the cost that is equal to the percentage they are used for business.
- Clothing – Most self-employed individuals do not know that they can deduct the cost of clothing they must wear for business. Work shirts, shoes, pants or suits can all be deducted.
- Meals & Entertainment – When a prospective client comes to town, taking him or her to dinner may help bring new business. If this is the case, meals and entertainment costs incurred for that purpose can be written off. Food bought for events meant to attract new customers can also be written off. Regular daily meals away from home are not deductible.
These are just a few of the most overlooked deductions. To learn about more deductions that only specific self-employed individuals qualify for, contact a local tax professional.
Rodger Black is a tax consultant and occasionally blogs for taxfix.co.uk, a site where you can learn about how to claim a tax rebate! So if you’ve ever asked yourself “how do I know if im due a tax rebate?” check it out today!