Paying taxes is overwhelming and a cumbersome task. If you are self-employed, then tax filing gets even more complicated. Fortunately, there are a number of self-employment tax deductions that you can claim to reduce the amount of taxes you owe in federal income taxes.
Most people are more than happy with working for other people. The main reason behind is the sense of security by showing up to work and leaving with a set paycheck. However, doing your own business and working from home sure has its advantages. For one, you don’t need to spend much money on clothing or transport if you are working from home. Secondly, there are many tax benefits that you can take advantage of when you are self-employed.
Your Self Employment Tax
If you work at a firm, your employer will most likely pay around half of your social security and Medicare taxes. If this is the case, then you will have to pay half of the taxes through payroll taxes. Now, as someone who is self-employed, you will need to pay the whole amount of your taxes through self-employment tax.
The benefit of being your own employer is that you can deduct half of the taxes that you pay. This form of tax credits for self-employed people can be seen as an above the line deduction, meaning that you can claim your tax break on your income return.
Self-Employment Tax Rate
The self-employment tax rate is 15%. 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). IRS
Your Home Office
If you are self-employed and work from home, you will be eligible to apply for a home office deduction. This tax break allows you to deduct specific expenses related to the house in which you conduct your business in. Expenses such as property taxes, rent, interest on bond, electricity, water, and repairs are eligible as tax deductions. It is possible to claim for security and cleaning.
If you use your internet just for business, then your internet costs can qualify as being deductible. However, if your family also uses the same internet for personal use, then you can only deduct a percentage of internet costs.
Similarly, you can only deduct phone or cell phone expenses related to business calls. If you are using your home line to make business calls, then you can only deduct business-related calls. If you have a second business-only phone line or cell phone, then you will be able to deduct the full expense. This is why it makes sense to have separate phone lines and cell phones to use for your home business clients when self-employed.
Other Self Employment Tax Deductions
Depending on the kind of work you do and the frequency of the expenses, it is possible to include other business-related expenses in your self-employment tax filing. These expenses will assist you in regulating your tax expense related to your home business. Some of the costs include:
- Medical insurance premiums
- Repairs and maintenance
- Equipment such as computers and printers and office supplies
- Travel
- Auto Expenses
- Advertising
- Subscriptions
You can also include expenses paid towards outside services that your business may have received. This can be general creditors who provide services such as bookkeeping and marketing services.
If you are someone who is self-employed and prefer handling almost every aspect of the business on your own, then you can work towards calculating and submitting your self-employment tax filing on your own.
Filing taxes and following all tax rules is overwhelming. If you think you will not be able to take proper advantage of all the self-employment tax deductions then it’s better to visit IRS website or seek professional help. A tax specialist can ensure that your taxes are calculated properly while also adhering to tax laws. In doing so, this will reduce the risk of an audit.
After all, you don’t want to pay the government more than you need to an nobody wants to go through the hassle of IRS audit right?