How to Find Deductions to Lower Self Employment Tax

Do you have a HUGE tax bill every year? being self employed can add 15% to your tax bill quickly. If your estimated tax bill is looking huge, dig out your records and lower that bill.

Make sure to record all expense that are related to your self employment, so that you can take advantage of lowering your tax bill.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• IRS BOOKLET
• record keeping software or logs

1. KNOW YOUR DEDUCTIONS: Download or pick up the IRS booklet SE instructions. SE stands for self-employment and IRS has lots of free information. You can also use tax software for self employment or read books that are more in depth.

2. RECORDKEEPING: If you are not currently keeping good records, start right now. Open a new tab and print out a calendar. Start noting on your calendar any appointments, out of pocket expenses and even mileage from your car.
   
   Do a print out of all credit card and bank statements that generate categorized spending.
   
   After reading this article click on the link in resource box for my article about reconstructing a mileage record book and start documenting this year's expenses.

3. HOME OFFICE: Start your search for deductions with looking at your home office expenses. This one can be tricky but think of the decorations, remodeling, supplies and equipment. Equipment and furniture will be depreciated as opposed to taking a straight deduction. This is where a good tax software program will be hlepful.
   
   Measure your office space so that you can take the proper deduction for home office. You will also deduct a portion of all utilities and expenses related to your home if you have a home office.

4. VEHICLE MILEAGE: The next major self employment expense can be the automobile. Many people do not realise that they may have a higher deduction by taking actual expenses for their automobile. This happens when the vehicle is used solely for business and has had a lot of repairs. The alternative is to claim actual mileage plus parking and tolls.
   
   So in step 4 you will want to compare the deduction of actual expenses, vs. the actual mileage x government allowance which is 55 cents per mile for business.

5. BUSINESS LOANS: You can deduct unrecoverable business loans. You can deduct the interest on your business loans. If you do not know the amounts, contact the lenders or borrowers to obtain needed information. Make sure to update your contact information with them.

6. Do not forget to look for deductions in business entertainment, eating, travel, schooling, advertising, paying help, software, internet (if applicable) and 50% of entertainment of business related meetings. Make sure to document all you can on your calendar.

7. RETIREMENT and HEALTH INSURANCE : Last do not forget to deduct your SEP retirement contributions and your self paid health insurance premiums. If you are in doubt about anything use a good software program or take your return in to a professional tax accountant.

Resources

• Writing Income Expenses
• Recreate Mileage Log

[nancycarol]

on 1/30/2010 Great tips and so timely too! Thanks for How to Find Deductions to Lower Self Employment Tax. *5

[krimzonrain]

on 1/11/2010 Great article and advice for the upcoming tax season!

[charlotteh]

on 1/4/2010 This is a excellent article and I love tax time because home business deductions are awesome for bigger return.:-)

[Wasatch]

on 12/29/2009 Great small business tax tips. Many small business owners fail simply because they don't understand taxes and how to minimize with deductions.

[ccarruthers]

on 12/20/2009 Great article on deductions for the self employed. 5*'s!