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Self Employed Tax Deductions

Updated on September 22, 2014

Self Employed Tax Deductions

Self employed people are subject to the self employment tax, which is 15.3% of your net profits. This is on top of your regular tax, and can add up very quickly.

To minimize your taxes, it's important that you are aware of all of the self employed tax deductions available.

This lens will discuss the most common self employed tax deductions, tax credits, and tax strategies to help you make sure you don't overpay Uncle Sam.

List of Tax Deductions for Self Employed Business Owners

Q: Is there a list of tax deductions that are common for self employed business owners?

A: You are allowed to deduct expenses against your business income as long as they are ordinary and necessary for your business. This basically means that if it's a common expense for your type of business and it's necessary in order for you to run the business, it's probably deductible.

If in doubt, write it down, and let your accountant decide if it's deductible.

In the meantime, here is a list of common tax deductions for self employed people:

* Inventory

* Bank fees

* Shipping fees and supplies

* Postage

* Office supplies

* Advertising

* Mileage

* Phone

* Accounting and legal fees

* Computer and software

* Internet, website and faxing services

* Payroll

* Contract labor

* Furniture and office equipment

* Continuing education

* Home office expenses

This self employed tax deductions list is not all inclusive. There are a lot more expenses you could incur, but these are the most common tax deductions for self employed people.

reporting 1099 income
reporting 1099 income

How Do I Report 1099 Income?

If you're self employed or an independent contractor, chances are you will receive a Form 1099-MISC at some time during your career. Form 1099 is used to report various types of income, and is due on January 31st of each year.

Income shown on IRS Form 1099 should be reported on your individual income tax return (use Schedule C - Profit or Loss from Business).

The good news is that you can deduct expenses from your business income, which will reduce your taxable income and thus the taxes that you pay on your self employment income (see above for a 1099 tax deductions list).


Standard Mileage Rate For 2010 Down Slightly from 2009

Many self employed business owners use their own car for business use. You are allowed to deduct the business use of a personal vehicle on Schedule C, Profit or Loss from business. You can use either the standard mileage rate or actual business expenses, although most people use the standard mileage rate.

Higher gas prices caused the IRS to increase the standard mileage rate in 2008 and 2009. While the rate has gone down slightly in 2010, it's still pretty high at 50 cents per mile. The rate was as high as 58.5 cents per mile in 2008 and 55 cents per mile in 2009.

Taxpayers may use the standard mileage rates to calculate the deductible costs of using their personal automobile for business, charitable, medical or moving purposes.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Whichever method you choose, it is important to keep track of your mileage to substantiate your deduction. Because the rates were increased in the middle of the year, it's also important to keep track of the dates you use your vehicle for business to make sure the proper rate is used.

Home Office Tax Tips

One of the biggest income tax deductions for self employed people is the home office. Here are some tax tips to help you get the most out of the home office deduction.

Qualifying for the home office tax deduction:

Your home office qualifies for the home office tax deduction if it is your principal place of business, and you use it regularly and exclusively for business.

To pass the 'place of business' test, your home office must be the principal place you conduct your business, or a place where you regularly meet with clients or customers, or it must be a separate structure not attached to your home.

Regular and exclusive use means that you spend at least 10-12 hours per week conducting business in your home office, and that you don't use this room for other purposes. For example, if you use part of the room as a laundry room or children's play room you may not qualify for the home office deduction.

A good example of a home office that would qualify for the home office tax deduction is a spare bedroom that is used only to operate your home

based or online business out of. A poor example of a home office - and one which probably would not qualify for the home office tax deduction - is using your dining room or kitchen as a home office.

Expenses that you can deduct as part of the home office tax deduction:

Expenses that can be deducted include mortgage interest, real estate taxes, utilities, insurance, repairs, security, and depreciation.

If you itemize deductions, chances are you are already deducting your mortgage interest and real estate taxes. However, deducting the business use of these expenses on the home office deduction schedule reduces your business income, which reduces your self employment tax. This results in much greater tax savings than just deducting these expenses on the itemized deduction schedule.

Click here to continue reading Home Office Tax Tips...

Tax Tips for Home Office Use

Disclaimer

Any tax advice contained in this message is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. It is strongly recommended that you get additional help from a (paid) tax professional who is familiar with your unique circumstances. In other words, don't take take advice from a Squidoo lens, or forum, or blog...

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    • profile image

      fcinternetmarketing 4 years ago

      Informative and helpful lens.

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 4 years ago

      @uneasywriter lm: Thank you!

    • uneasywriter lm profile image

      uneasywriter lm 4 years ago

      Very good information, of which I need. Thanks!

    • profile image

      anonymous 4 years ago

      Great information! I'll be needing this soon. I'm just starting an offline business and money is starting to flood in quickly! I need to know how do self employed taxes and all that stuff.

    • profile image

      jillian22 4 years ago

      Very useful information!

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    • Bonfire Designs profile image

      Bonfire Designs 5 years ago

      Super good info and really well presented!

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    • MoonMaa profile image

      MoonMaa 6 years ago

      Great resources regarding help with taxes.

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      LindaBJeter 6 years ago

      Great lens, at least now more people will know why tax is so important, what benefits can be avail by giving tax.

    • BusinessSarah profile image

      BusinessSarah 6 years ago

      Comprehensive and informative -- thanks!

    • UKGhostwriter profile image

      UKGhostwriter 6 years ago

      Very informative!

    • aesta1 profile image

      Mary Norton 6 years ago from Ontario, Canada

      Pity, I only saw this one now. I will include this in my lens working for others just doesn't work for me. I think it is a very good resource.

    • profile image

      glowchick 6 years ago

      Great information , thanks for making such a great lens. I added to my favs so I can come back when I need to :)

    • profile image

      arkangel79 7 years ago

      @EbizTaxTips LM: Thanks for the speedy reply!! Sorry for the typos, i guess it happened when i copied, an pasted it.. I realized i had to reg, so i copied it and came back ...Wow i need to set up my hour glass this site rocks later, an thanks again!!

    • EbizTaxTips LM profile image
      Author

      EbizTaxTips LM 7 years ago

      @arkangel79: Yes, you can deduct ordinary and necessary business expenses, which would include materials, gas, tools, etc. You have until April 15, 2010 to file your 2009 tax return.

    • profile image

      arkangel79 7 years ago

      Hi, i just received a 1099, for services.. i did miscellaneous jobs like, electrica, low voltage, computers and projectors and other.. my questions is; can i use materials, gas, ctrical, low tolls, tools, work clothes and any other, as receipts to lower payment???? Also, how long do i have before i have to send in my 1040...... Please get back to me as soon as someone reads, thanks..

    • profile image

      Dailydreams 7 years ago

      I found this lens though the discovery box on another lens and it expands on more tax saving tips> i thinks this is very well done and has great relevant useful content that people can use thanks for taking time to help others .I am going to feature this in my new "other Peoples" lens.