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Tax Advantages of Being Self-Employed

Updated on August 22, 2016

Tax Advantages of Being Self-Employed

As a sole proprietor, you can have access to some tax advantages, all you have to do is arm yourself with the necessary information about tax as much as possible.

Self-employment tax deduction

This tax for self-employment is the portion of the employer with respect to social security and Medicare to be paid by self-employed people. Every worker must pay taxes, as of 2015 it was 15.30% for self-employed and 7.65% for employees. Self-employment tax is seen as an expense by the IRS and is deducted from the Business income.

Other deductions for the self-employed include

Home office

Workspace cost either rented or owned can be deducted as home office expenses, but you have to be prepared to defend this in the case of an audit. A good way of doing this is through the preparation of the workspace map with the right measurement. Which you have to submit for substantiating your deduction.

Phone and the internet

You can deduct your fax, internet and business phone expenses. You may need to deduct all this expense relating to the operation of your business.

Health insurance premium

If you are not eligible for the plan of your spouse’s employer, you can deduct your own health insurance premium.

Meals

When you are entertaining a client or travelling for business, the meal taken is tax deductible. Though you are eligible only to 50% of the total cost of the meal. This will be possible if the receipt for the meal is properly kept.

Entertainment

For you to be able to claim entertainment deduction, you must have conducted business with the person or about to for the claim to be approved by the IRS. You have to meticulously keep the records to scale through the audit team.

Travel

For your travel to become eligible for this advantage, the trip must be more than 1 work day trip and should be outside of your business location. The details of the business purpose will be filled to show your eligibility for the deduction

Car

Car expenses related to business are tax deductible. You have to keep an accurate record of the business trip as well as the expenses which can be accessed either through standard mileage rate or actual expenses.

Interest

Business loan interest is tax deductible. Although credit card interest is not tax deductible if it is personal: but can benefit when it is related to business.

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