9 Self-Employed Tax Deductions You May Overlooking
As an independent professional, properly managing your expenses is not just good business, it’s also a good income strategy.
With proper expense management, you can write off a number of healthcare and retirement costs at tax time and put money back into your pocket.
Anything you do to enhance your job-related skills or round out knowledge related to your business can be deducted.
As an independent professional, properly managing your expenses is not just good business, it’s also a good income strategy. As a business-of-one, you will likely incur fixed costs that can’t be billed back to a client. You may also need to take care of expenses such as healthcare and retirement.
Each of these fixed or variable costs can be a drain on your income. However, with proper expense management, you can write off a number of these costs come tax time and put money back into your pocket. Here are 9 tax deductions to consider for your independent business.
1. Retirement Plans
One of the best tax advantages for the self-employed are retirement plans. Tax-deductible qualified plans include:
- An individual 401(k) is ideal for individuals with no employees. For 2021, you can contribute up to $19,500 (plus an additional $6,500 if you are age 50 or older).
- The Savings Incentive Match Plan for Employees (SIMPLE) IRA is ideal for those who employ others. It allows employers to contribute to their employees’ retirement.
- The Simplified Employee Pension (SEP) IRA allows you to contribute the lesser of 25% of income or $58,000 for 2021.
2. Phone and Internet Expenses
You can deduct phone, Internet, and fax expenses directly related to your business. For example, if your cellphone is for both business and personal use, you are only eligible to deduct the percentage of your bill that relates to business usage.
3. Education Expenses
Anything you do to enhance your job-related skills or round out knowledge related to your business can be deducted. This may include an online class, certification course, tuition, seminar, books, or subscriptions to professional publications. Be sure to save receipts of all purchases, including e-receipts.
4. Insurance Premiums
You may be eligible to deduct medical, dental, and long-term care premiums for yourself, your spouse, and your dependents. However, if you are eligible to enroll in your spouse’s employer plan—even if you choose not to—you cannot take this deduction.
5. Marketing and Advertising Spend
If you pay to create an ad for your business, buy business cards or stationary as marketing collateral or use a PR firm to promote your business, these costs can be deducted.
If you take a business associate or potential client out to eat with the intent to further your mutual business goals, you can deduct up to 50% of this cost. The meal should not be overly extravagant and be sure to either keep your receipt or record the time, place, and business purpose of your meal.
7. Legal and Professional Fees
Association fees, business development costs, or professional fees such as a tax preparation fee from your accountant are deductible so long as they are directly related to the operation of your business.
8. Auto-Related Expenses
If you use your car to travel for business, you can deduct a dollar value of business miles traveled. Be sure to keep a record of the date, mileage, and purpose for each trip. Similar to the home office deduction, you can use a standard mileage rate, or calculate your actual expenses.
9. Travel Expenses
If business is the specific purpose of your trip, and you actively engage in a business activity such as a client meeting while on the trip, travel is another deduction you can add to your list.
As a best practice, be sure to maintain records and receipts of all expenses you plan to deduct. Continually ask yourself: is this a legitimate business expense? If you’re unsure, don’t try and write it off.
Tax deductions can get complicated quickly. At MBO Partners, our business managers can help properly track and account for these expenses and enable you to see income benefit at each paycheck, rather than at the end of the year.
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.
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