Tax Benefits for the Self Employed

Tax season is nearly upon us again, and Americans everywhere are beginning to scurry to gather up any documents or receipts that will help them out during a time that gives most people a headache just considering it.  However, for the self-employed citizens out there, cheer up – starting your own business is a wonderful way to turn costs you would accrue anyway into legitimate business expenses you can write off.  Here are a few benefits to consider for anyone self-employed as you gear up to begin working on your taxes in the next few months:

Home office.  Anywhere you do your work, whether you rent or own your own home, can count as a home office (though you should be prepared to defend your choices if faced with an audit by making a map of your workplace, including your bathroom).  You can deduct from the cost of rent or your mortgage payments, property taxes, as well as the percentage of your home that you utilize as a workspace (so if you estimate that twenty percent of your home is dedicated to working, then you could deduct twenty percent of your power bill). 

Meals and entertainment.  Because many people try to cheat in this area, it is best to keep all of your receipts and any documentation pertaining to the meal or method of entertainment that you used with regards to your business.  Meals are generally accepted as the common method of entertainment-related business practice, although you can only deduct fifty percent instead of a hundred.

Travel.  By keeping track of the miles your racked up for your business purposes as well as the dates (including driving and flying), you can figure the standard mileage rate and then deduct it as a business expense.  Other expenses include gas, repairs, and auto insurance.  You should also know that any overnight traveling you do for business purposes is tax deductible as well.  Keep all your records – this is another area commonly audited by the IRS.

Communication.  Your internet and phone are deductible as well, even if you don’t claim the home office deduction.  Once again, keeping specific records of your bills and technology usage will be helpful should you be audited.  You should estimate the percentage of your total internet and phone bill that you used while conducting your business.  If you have a second phone line you use exclusively for conducting business matters, deduct a hundred percent.

Education.  You can deduct any costs that accrued because of classes you took so long as you can relate them specifically to your business (a class on grant writing would be deductible if that was your line of work, while a class on feminist authors in the Middle East probably wouldn’t count). 

If you are ever in doubt about write offs, just ask yourself, “Is this expense necessary to the success of my business?”  You’ll avoid trouble if you are audited by keeping excellent records, such as deducting expenses from the best dental plan you need to keep you healthy, wealthy, and wise.