Don’t overlook 7 top tax breaks for self-employed
Those who keep good records can write off a host of items come April
Running your own business comes with plenty of challenges. But contrary to what many Americans think, the Internal Revenue Service does not want taxes to be among them.
That’s because while the tax code does have its quirks, the IRS offers a host of valuable tax breaks for sole proprietors and the self-employed that are intended to help their businesses succeed. Here are seven of the most valuable breaks for the self-employed:
Health insurance deduc
tion. “One of the most commonly missed items is the self-employed health insurance deduction,” said Jeff Warnkin, a CPA at the JL Smith Group in Avon, Ohio. The premium is wholly deductible against your income tax, he said, and the tax savings can be big depending on your plan. Furthermore, in tax year 2015 there is an increase in the “individual mandate” penalty for taxpayers who do not have health coverage, so paying for your own insurance plan can prevent added fees.
Travel expenses. You don’t have to drive to a work site in order to deduct business-related travel, said Chris Kichurchak, vice president at Strategic Wealth Partners in Independence, Ohio. “A person can deduct all expenses for any travel as long as there is at least one hour of documented business discussion,” Kichurchak said. In addition to parking and airfare expenses, you can get a break even if you’re just taking a trip in your personal vehicle. The standard mileage deduction is 57.5 cents per mile traveled in tax year 2015 for business purposes. Clothinge and uniforms. Any specialized clothing is taxdeductible as a business expense, including safety goggles, work gloves or a uniform. But take care to remember the IRS specifies these items “not suitable for everyday use,” said Grafton “Cap” Willey, managing director at professional services provider CBIZ MHM.
Education and association dues. Books or periodicals relating to your business are deductible on Schedule C of your tax return, as are any courses or continuing education you take. Any professional dues for associations or unions are also tax-deductible. Simply make sure you have the proper documentation for both the expense and its relevance to your profession.
Retirement savings. The IRS offers a generous tax break to self-employed individuals who contribute to a qualified savings plan. One of the most popular is a simplified employee pension plan, or SEP, and can offer big tax advantages and can be created in minutes using any number of online providers. Contribution limits are up to 25% of your net earnings from self-employment up to $53,000 a year. Those contributions are deductible from your income taxes and can add up in a hurry if you’re making substantial savings to your SEP plan.
Home office. Having a home office can unlock a host of deductions, including breaks on your utility bills, property taxes, even upkeep on your home. The IRS allows self-employed Americans to take a break on these and other items based on the site of your office as a percentage of your home. The catch is that the tax man demands your office is used for “regular and exclusive” use, according to the IRS.
Tax and financial ser
vices. Professional services from a third-party accountant are taxdeductible for your business, so you can get a tax break if you want or need an expert to check the math or regulations around your business activities.