Self Employment Deductions

Self employment deductions are available to you as a small business owner. If you don't claim all your legitimate deductions, you are cheating yourself. So take advantage of all the deductions you can.

The purpose of a business is to earn a profit. The costs you incur to create a profit are usually deductible. Some costs may be expensed meaning you are able to write off the whole amount in the year they occur.

You must show a profit in at least one year out of three to qualify for the ability to expense your costs. Otherwise you will lose the deductions. You must show a profit or the IRS could consider your self employment business a hobby.

Some costs will need to be depreciated over a period of time as specified by the IRS. A home office or office equipment are prime examples.

Some costs can only be partially deducted such as meals and entertainment.

For specific guidelines concerning what you can deduct, consult your certified public accountant for current rules and advice.

Self Employment Deductions

Here are a few self employment deductions you can take if you qualify.

Home Office

If you have an office in your home, you can depreciate the cost over future years. It may not be advisable to take a deduction in the year you sell your home. Your CPA can advise you.

Telephone

You will most likely need a telephone in your business. You will need a separate line for your business and another one for your personal use. Many years ago I claimed a percentage of my telephone bill as business. When I was audited, the IRS informed me I had to have a separate line. So I bought an expensive business telephone, installed an additional line and wrote the cost off in the following year.

Mileage

The IRS will allow you to use your personal vehicle in the course of your business. They will allow you to deduct 54.5 cents per mile for business. The amount you can deduct can change, so check with your CPA for current rates.

If you need a vehicle regularly, consider buying a separate vehicle for your business. It is deductible.

Medical Insurance

When you are self employed, medical insurance is a legitimate deductible expense. It isn't inexpensive, but it is deductible, at least for now. Soon you may not be able to have private insurance.

Office Supplies

Every home office will need supplies. Paper for your printer, pens to write with, letter openers, staple pullers, you name it. More deductions.

Office Furniture

Every home office will need some basic furniture. You will need a chair, desk, book shelves, and file cabinets. Your budget will decide what you can afford. I had a custom made work station with book cases and built in drawers installed in my home office. It gave my wife and I more work space than two desks.

Here are a few more self employment deductions you can take.

Office Equipment

Every office will need some basic office equipment. Today you need a computer, printer, copier, fax, and a paper shredder. If you do a lot of mailings a postage scale will be an asset. Most of this equipment will have to be depreciated on your income tax forms.

Software

If you have a computer, you will need software. Since bookkeeping is required by the IRS, an accounting package makes sense. A word processor is a must for most people. A database to store business information is very helpful. A spreadsheet is very helpful for financial calculations.

If you develop your own website, you may want to use some graphic software to work with your pictures and to create graphics. To create eBooks you need some software to create PDF files. All of these are legitimate expenses that can be depreciated or deducted depending on their cost.

Websites

A website is a necessity today for every business including a local business. It is a great way to get leads, provide your customers with information and to sell goods and services online. I recommend that you look into Site Build It (new window) for all the tools you would need to create your business online.

Internet Access

You will need Internet access to work online, research information for your business, and email. More business self employment deductions.

Contract Labor

Need help in your business? Contract labor is a major deduction. Suppose you wanted someone to build your website. (new window)

This would be a deductible expense. So are salaries and social security and Medicare taxes for employees.

Insurance

Most businesses need insurance. If you work on someone else's property or provide a service, you should carry liability (errors and omissions) insurance. If you use a vehicle in your business, car insurance is recommended.

Professional Fees

Most likely you will have self employment deductions like fees for legal advice and tax preparation services.

Advertising

Few self employed business entrepreneurs can do without advertising. Another deduction.

Miscellaneous

There will be miscellaneous self employment deductions like PO box rentals fees, filing fees, books, subscriptions, training, printing, postage and you name it.

There are self employed deductions available to every business. If anything, you may have more than you want. The nice thing about being in business for yourself, you have more deductions than a person who works for someone else.

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