South Florida Sun-Sentinel Palm Beach (Sunday)
Tax deductions for the self-employed
Q: I’m self-employed and frequently use my car for business. Can I deduct the use of my vehicle on my tax return, and if so, how much?
A: There’s a tax deduction waiting if you drive your own car for business — and it isn’t just for Uber or Lyft drivers. Any self-employed person who makes deliveries, drives to a client’s location or otherwise uses a personal vehicle for work-related purposes can claim this deduction.
There are two ways to calculate the deduction: You can use the standard mileage rate or your actual car expenses. If you use the standard mileage rate, you can deduct 56 cents for every mile driven for business in 2021 (58.5 cents for 2022). Make sure you keep good records of the dates and miles you drive for work — and don’t include driving for any personal trips or errands.
With the actual expense method, you add up all your car-related expenses for the year — gas, oil, tires, repairs, parking, tolls, insurance, registration, lease payments, depreciation, etc. — and multiply the total by the percentage of total miles driven that year for business reasons.
For example, if your total annual car costs are $5,000 and 20% of your miles were for business, then your deduction is $1,000 ($5,000 x .2).
Q: Are medical expenses or health insurance premiums deductible if you’re self-employed?
A: Although medical expenses are deductible, relatively few taxpayers really get to deduct them. First, you must itemize to get this tax break (and most taxpayers do not). Second, you get a deduction only to the extent your expenses exceed 7.5% of your adjusted gross income.
But there’s a big exception for the self-employed. You can deduct what you pay for medical insurance for yourself and your family, whether or not you itemize and without regard to the 7.5% threshold. You don’t qualify, though, if you’re eligible for employer-sponsored health insurance through your job (if you have one in addition to your business) or your spouse’s job.
Plus, if you continue to run your businesses after qualifying for Medicare, the premiums you pay for Medicare Part B and Part D, plus the cost of supplemental Medicare (medigap) policies or the cost of a Medicare Advantage plan, can be deducted as health insurance premiums without having to itemize.