Tax Deductions for Self-Employed Individuals

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Self-Employed Expenses Checklist

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Use this checklist to be sure you don't miss a tax deduction

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There are a variety of tax deductible items available for the self-employed. Income taxes and self-employment taxes are usually the biggest single expenses for the small business owner. Keep careful records of your expenses and be aware of what deductible items are available and you can greatly increase your net income.

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Tax Deductible Items for the Self-Employed can include:

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Tax Deductions - Home Based Business

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If you are running your business from your home, a percentage of the costs of owning or renting your home may be deductible. The tax deductions for a home based business are generally calculated by dividing the exclusive and regular business use area by the total living area of your home. The business space does not have to be a full room, but it absolutely must be exclusive. You cannot use the area at any time for personal use, even if the personal use is just a day or two of the year.

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For example, if your home office is 200 square feet and your home is a total of 2000 square feet, then your deductible percentage is 200/2000 or 10%. (Note that daycare businesses will use a formula based on the number of hours they make the home available to the children.)

A new, flat rate deduction is also available for home office deductions.  If you choose this method, you need only keep track of the square footage used exclusively for business.

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Common tax deductible expenses for a home based business for those using the actual costs method:

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____ Mortgage interest, real property taxes, PMI insurance
____ Utilities, such as natural gas, electric, propane
____ Trash service, pest control service
____ Home insurance
____ Regular maintenance of the home

____ Depreciation of the business part of the home

Refer to IRS Form 8829 - Expenses for Business Use of Your Home

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Business Use of Your Personal Vehicles

Another of the potentially large deductible self employed business expenses is the business use of their personal passenger vehicles.

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There are basically two ways to calculate this. Calculate the deduction both ways the first year to see which one will give you the biggest deduction. For either method, you must keep a log of your business mileage to substantiate the deductions.

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Method 1: Standard Mileage Deduction
The standard business mileage deduction for 2015 is $.575/mile. (Beginning Jan 2016, the rate is $.54/mile, but be sure to check for mid-year changes) If your business is home-based, then virtually all business mileage is deductible. If your business is not home based, then you may not take a deduction for the mileage from your home to your principal place of business. Any other business related mileage should be deducible. This includes mileage to pick up supplies, to do your business banking, to make deliveries, to visit customers or potential customers, to the post office, to meet with the accountant or attorney, and to stores or business suppliers.

_____ Standard mile deduction ________ miles x $ ________ per mile = $__________

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Method 2: Actual Vehicle Expenses

This is based on the percentage of business use of your vehicle. For example, if you drove a total of 10,000 miles in 2015 and 2000 of those were deductible business miles, then 20% of the vehicle expenses are deductible.


This will include:
____ Depreciation of the purchase cost of the vehicle
____ Insurance
____ Interest
____ Auto license plate fees and taxes
____ Oil changes and other regular maintenance
____ Car washes
____ Gasoline or other fuel
____ Repairs - these may need to be depreciated. Check with your accountant.

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Other Potential Self Employed Expenses

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____ Advertising
____ Commissions paid
____ Contract Labor
____ Interest on a business loan
____ Parking and tolls for business travel
____ Equipment purchases - these usually are depreciated or expensed with a Sec 179 deduction
____ Accounting and legal fees for the business
____ Health insurance premiums - special rules apply.
____ Office Supplies
____ Business liability insurance
____ Rent of business equipment
____ Rent or lease of storage facilities
____ Rent or lease of business space
____ Maintenance and repairs of equipment or business space
____ Shop supplies
____ Business property taxes
____ Business travel - hotel, parking, air and bus fares, taxis
____ Internet service (percentage of business use)
____ Web site hosting, design, and domain names
____ Cell Phones (percentage of business use)
____ Telephone - the first line coming into a home is usually not deductible, even if it is used for business. However, if you add on services for the business, such as call waiting or distinctive ring tones, these may be deductible. A second line for business or a business fax machine is deductible.
____ Long distance phone charges and phone cards for business calls
____ Books, newspapers, magazines for business purposes
____ Association and membership fees
____ Meals and entertainment (these are usually only 50% deductible)
____ Utilities - Electric, heat
____ Cost of inventory items that sold (do not include unsold inventory)
____ Donated inventory - check with your accountant for special rules
____ Merchant fees for your credit card sales
____ Bank service charges on your business accounts
____ Depreciation on the cost of furniture and equipment that you owned before you started the business, such as desks, computers, file cabinets. - check with your accountant
____ Answering services
____ Postage and shipping
____ Education and seminars - must be related to your current business, not for a new career
____ Customer gifts
____ Software purchases
____ Software subscriptions, such as security software

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New Health Insurance Tax Credit

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Starting 2010, there is a credit available for health insurance premiums paid for employees. This is available to certain qualifying small business employers. In general, you must have fewer than 25 employees and their average annual pay must be less than $50,000.00. The credit can be as much as 35% of the premiums if you qualify. Refer to Form 8941.

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Ask About Other Self-Employed Tax Deductions

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We can help you find tax deductible items. During your tax preparation appointment, bring in any items that you are not sure are deductible so that we can review them. Be sure to ask us what tax deductions are generally seen on a tax return for your particular business. If you prefer to prepare your own tax return, we are happy to schedule a consultation to be sure that you are taking advantage of every tax deductible item that you are entitled to and to review your small business profits.

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This checklist helps the self employed business owner to be sure that they have not forgotten any business tax deductions on their tax return. Identifying deductible items for self employed taxes may be the single most powerful activity that a small business owner can do to increase their available income.

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Print this article and use it as a checklist to help you take all the deductible self employed expenses on your tax return.

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Patricia Tokar, CPA - call us or contact us for small business tax help, small business tax preparation, QuickBooks assistance, and small business tax advice. We are pleased to offer remote accounting services - transmit, fax, or mail your data from the comfort of your office and we will process and return your completed work.  Ask about our QuickBooks Online packages - we can offer QuickBooks at discounted rates for our clients.

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Legal and IRS required notice:

This article is not intended to be specific tax advice. It is intended as a general guideline only. Any specific advice should be sought from your tax professional.

CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Department guidelines, any federal tax information contained in this article, or any attachment, does not constitute a formal tax opinion. Accordingly, any federal tax advice contained in this communication, or any attachment, is not intended or written to be used, and cannot be used, by you or any other recipient for the purpose of avoiding penalties

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Certified Public Accountant

Useful Resources

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