When you’re self-employed, tax time can be especially stressful. This is especially true if you owe self-employment tax, which can easily eat up 15.3% of your taxable income. The good news? There are plenty of tax deductions offered to self-employed workers that can help to reduce your taxable income and thus save you some money on your tax bill.
Not sure where to start with tax deductions? Explore a few of the most common below and consider whether you may be eligible for any of them!
Home Office Deduction
One of the biggest ways to reduce your tax burden when you’re self-employed is to claim the home office deduction on your taxes. Specifically, the home office deduction allows you to deduct the cost of maintaining your home office space from your taxable income. This includes the portion of your rent/mortgage related to the space, as well as any cable or utilities run to the space.
The most important thing to keep in mind when determining your eligibility for this deduction, however, is that the space must be fully dedicated to working from your home. This means it cannot simply be a corner of your living room that you occasionally use for work. It must be a separate space used exclusively for your work.
If you do a fair amount of traveling for your work, you may also be eligible for a mileage/gas deduction for any work-related travel. In fact, as of the 2020 tax year, self-employed workers can claim up to 57.5 cents per mile driven. This can add up to some significant tax savings.
There are some strict eligibility requirements to keep in mind when it comes to claiming mileage, however. The main thing to keep in mind is that your commute must be 100% word-related. This includes miles traveled to meet with clients, travel to work sites, or even run errands to pick up supplies/materials for a job.
Eligible Utility Deductions
If you work from home, you may also be able to deduct a portion of your utilities, cable, and other services that you pay for to keep your business running. This may include the portion of your monthly Internet bill that is used for work-related purposes. If you need to make phone calls to clients as part of your work, you may also be able to deduct a portion of your monthly phone/data bill.
If you’ve claimed a home office credit, don’t forget to deduct the portion of your utility costs (electricity, gas, etc.) needed to keep your home office running as well.
Get Help With Your Taxes Today!
While being self-employed can be challenging from a tax perspective, the reality is that there are many deductions available to make your life easier and save you a little money. Feeling overwhelmed by filing taxes as a self-employed worker this year? The Counting House Associates team is here to help. Contact us today to set up your free consultation!