Friday, January 20, 2012

Deductions for Self-Employed Taxpayers

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Becoming your own boss is a very rewarding experience. You get to set your own hours, answer to no one(except the Internal Revenue Service, of course), and fully control the direction of your business. The downside though is if something goes wrong, you have to answer the tough questions and make the quick decisions that could save or sink your business.

Being your own boss also forces you to carry the burden of all the expenses. It's not always swimming in profits like Scrooge McDuck when it comes to owning your own business. It doesn't, however, have to be all fees and charges, being your own boss also nets a few great benefits: special deductions just for being self-employed! Look over these deductions and make sure you're maximizing your profits, and in the case of an audit always keep your receipts!

Tax-Deductible Expenses Everyone Should Tax Advantage of

Home Office: Using a home office as your base of operations can have one surprising benefit: it can be deducted! It doesn't even have to be a full room, as your home office can be a corner or part of a room as well. You must measure your work area and divide by the square footage of your home to find the exact fraction you need to calculate your work-related deduction. This can apply to rent, mortgage, insurance, electricity, and whatever else goes into making your business work. Include a restroom also, as the IRS expects your home-based business to need facilities too.

The expenses you can deduct for your home office include the business percentage of rent or mortgage, property taxes, utilities, homeowners insurance and home maintenance that you pay during the year. For example, if your home office occupies 15% of your home, then 15% of your annual electricity bill becomes tax deductible. (For more, see How To Qualify For The Home-Office Tax Deduction and Creating A Home Business Work Space.)

Office Supplies: Your home office does not limit your deductions there. You can also write off your office supplies. You need only prove your purchases with a receipt(s) to deduct them from your taxes. This can include, paper and ink for your printer, pens, staples, paper clips, and many other things. Anything you need to purchase to run your business could potentially be a write-off as long as you are prepared to prove its worth.

Finally, equipment and office software are also up for grabs as tax deductions. Your computers, copiers, scanners and other machines can be 100 percent deducted for your home business. The cost of software and subscriptions to magazines and other periodicals are also fully deductible, saving you for the year they were purchased in. This can save you quite a bit of money and allow your business to grow with your new software and machinery.

Land line and Internet: If you use a separate line than your home number, you can deduct your business phone, fax and internet expenses. To avoid extra flack from the IRS, only deduct the expenses that are used for your business. If you have a second phone line that you use exclusively for business, you can deduct the entirety of said bill. With the internet, you would only deduct your monthly expenses depending on how much of your time online pertains to your business. Be honest here as you would hate to have to justify using your internet exclusively for your business with Facebook all over your history...among other things I can only imagine.

Vehicle: As long as your recorded trips are for business ONLY, your vehicle expenses for those trips are tax deductible. Keep in mind that expenses related to vehicles are commonly flagged for an audit, so keep those records!

Most people deduct the standard, IRS-sanctioned mileage rate, but you can also deduct your actual expenses. With the first you only keep track of the miles you drive and the dates they were driven. You then multiply the total miles by the standard rate of mileage, which will be what you can deduct.

To use the other actual expense method, you must calculate the percentage of driving you did for your business over the course of the year as well as the total cost of operating your car during the year, including gas, and maintenance such as oil changes, repairs and car insurance.

Continuing Education: Any expenses that you want to deduct for continuing your eductions must be related to your existing business. If you work in child care, taking a course called "Early Childhood Education" to brush up on your skills would be tax deductible, but a spin class you take to keep yourself chasing those kids wouldn't be.

Being your own boss has a lot of hassle and may not seem like it's worth it sometimes, but when you can deduct things like these on your taxes, it makes being the top dog not so bad. Stay tuned to my blog for more info to keep you up to date on the changing world of taxes.

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  1. article very good to read, thanks to share

    Tax Savings & Elss

    1. Thanks for the good words, stay tuned for future updates!