As someone who is self-employed, you have many more tax incentives available than normal employees. Over the past several years, legislation has tried to improve the tax code to lessen the tax bill for self-employed taxpayers. Now in 2022, there are many great tax deductions that are available for freelancers, contractors, and other self-employed people. Continue reading for tax deductions for the self-employed.
Home Office Deduction
If you work from home or use a portion of your home for business purposes only, you may qualify for the home office deduction.
You could deduct a portion of your mortgage or rent, property taxes, utilities cost, repairs & maintenance, and other similar expenses. This is only for self-employed, not employees who work from home.
There are two options on taking this deduction:
- Calculate your deduction using the rate of $5 per square foot of the business area in the home. The maximum is 300 square feet for a maximum deduction of $1,500.
- Deductions can be calculated based on the percentage of the home that is exclusively and regularly used for business-related activities.
Vehicle Expenses
If you drive your car to meet vendors, pick up supplies, meet with clients, and more, you could recoup some money to take care of the wear and tear.
If you kept up with the number of miles you drove for business-related reasons throughout the year, you can multiply that by the IRS mileage rate, 56 cents per mile for 2021, and deduct the total from your tax bill.
You could also deduct the actual expenses you’ve incurred related to your vehicle. This can include depreciation, licenses, gas, parking fees, insurance, maintenance, repairs, registration fees, and tires.
Business Insurance Premiums
You could deduct business insurance premiums, employee accident insurance premiums, and employee health insurance premiums.
There is a specific area for this on your Schedule C form but make sure you are deducting the correct items by referencing IRS Publication 535.
Office Supplies
The everyday supplies you use to run your business can provide you with a tax deduction.
You can deduct paper, staplers, pens, and additional office supplies.
You will be able to deduct the cost of office supplies that you used during the tax year. If you have additional supplies on deck, you should be able to deduct the cost of those the year you purchase them.
For larger equipment, such as computers and other technology, you will be able to deduct them the year you purchase them if their useful life is a year or less. If their useful life is over a year, they can be recognized as assets that depreciate over their useful life. Then you will be able to deduct the depreciation over the next several years.
Phone and Internet Costs
Almost every self-employed person utilizes a phone and internet for their business. This allows you to be able to deduct a portion or all of their annual cell phone or internet bill.
The main requirement is using your business dedicated smartphone or internet service for business-related activities. If you do not have a dedicated line, you can deduct the percentage used for your business.
If you are self-employed and not sure what deductions you can qualify for, our advisors at Maven Bridge Capital are happy to help. We will help you receive all of the tax deductions and credits you can to reduce your tax bill as much as possible. Give us a call to get started today!
Sources:
https://money.usnews.com/money/personal-finance/taxes/articles/self-employment-tax-deductions
https://www.investopedia.com/articles/tax/09/self-employed-tax-deductions.asp
https://www.nerdwallet.com/article/taxes/self-employment-tax-deductions