Surprisingly, there are tax deductions on the tax return filed by the self-employed that small enterprises sometimes miss. Taking advantage of all possible tax deductions and tax credits is a major part of tax planning. Timing of revenue streams and expenses can also be very important. It's best to consult your CPA for personalized guidance, but here is a brief overview of just some commonly overlooked self-employment tax deductions:
When you utilize a vehicle for legitimate business purposes, expenses related to business become deductible. These may include a portion of your car payment, insurance, fuel costs, and expenses for repairs; or you can simplify and take a flat mileage rate.
Contributions to qualified retirement plans are tax deductible in different amounts, depending on age and type of plan. Income limitations can apply. This is a very important decision area for tax planning.
Most people know that self-employed people can utilize a portion of their house as a home office for their business. If you don't, investigate doing so for a self-employment tax deduction. It should be a space utilized solely for business. The expenses of that office are legitimate tax deductions. These can include the portion of the home mortgage that is allocated to the office area, phone use, utilities, internet usage, and other home expenses related to the business.
Business Debt Interest
If you have incurred a debt for a business purpose, the interest on that debt is a legitimate deduction on your tax return. This can include interest paid on a credit card, but it is best if that card is utilized solely for business purposes.
Expenses incurred for education that improves the skills or craft utilized in your present business are tax deductible. There is also the Lifetime Learning Credit of up to $2000, for up to 20% of eligible educational expenses, which can be claimed to offset tax owed, but cannot be received as a refund.
If a trip is primarily for business purposes, such as attending a convention or visiting clients, many expenses, such as meals, lodging, and travel are legitimate tax deductions. Strategic planning can be utilized for business travel. The rules of the tax code can be complex and proper record keeping is always necessary. Business accounts should also always be kept separate from personal accounts.
Health Insurance Premiums
If you don't have access to health insurance from an employer, health insurance premiums paid for you or family members may be deductible on your tax return. In some cases, life insurance may also be a legitimate deduction.
Paying Self-Employment Tax
As a business entity, if you are going to owe payroll, or Social Security or Medicare taxes, quarterly tax payments should be estimated and any self-employment tax should be paid. If you don't fulfill this requirement, interest will be charged and owed to the IRS! The good news is that 50% of the amount of the taxes should be deductible on your tax return.
Read more on: Tax Deductions for the Self Employed
New Credits from COVID-19 Relief
Due to the Coronavirus, there are a number of new credits that will affect small business taxpayers when filing taxes for the 2020 tax year. These will include a Credit for Sick and Family Leave, an Employee Retention Credit, and a Credit for Eligible Employers, among others.
Work With Our Team
The tax situation is fluid and subject to change. Planning is essential. Consult a reputable CPA, such as Chandler & Knowles, for tax advice and preparation and to keep up with the latest tax developments. The CPAs at Chandler & Knowles can help you find every legitimate deduction and avoid costly errors. Not only that, the professional CPAs at Chandler & Knowles always stand behind their work, if there is a question by the IRS concerning any part of a tax return that they have filed. Contact our team today.