Deductions for Self-Employed Taxes
Self-employed workers often have more complicated tax returns than those who receive paychecks from an employer. Self-employed workers must make estimated tax payments throughout the year and pay a special self-employment tax (SE tax). Despite these complexities, self-employed workers enjoy a variety of tax deductions that often do not apply to normal employees, which can significantly reduce the amount of tax they owe.
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SE Tax Deduction
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While self-employed workers must pay the SE tax, a portion of the SE tax paid is tax-deductible when filing an income tax return. According to the IRS, the SE tax rate is 13.3 percent as of February 2011 (down from 15.3 percent in 2010), and half the SE tax paid is tax-deductible. For a self-employed worker who makes $100,000 a year, this deduction would result in over $1,000 of savings.
Home Offices
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Self-employed workers often make use of home office spaces to carry out business activities. The cost of running a home office is deductible on an income tax return. The amount of the deduction you can take for a home office is calculated by measuring the size the office space that is devoted to business use and allocating a percentage of the mortgage or rental cost of the dwelling to that space. Other expenses related to a home office, such as office supplies, furniture and computer software, are also deductible.
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Business Use of a Vehicle
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If you use your personal vehicle to carry out business activities, the cost of operating the vehicle while performing those activities is tax-deductible. According to Bankrate, if you use a vehicle in your business, you can either add up the actual cost of operating the vehicle to determine your tax deduction, or you can use a standard mileage rate provided by the Internal Revenue Service (IRS) to calculate the deduction.
Other Common Deductions
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Self-employed workers are eligible for a variety of other business-related tax deductions. Common business tax deductions include business travel, such as airfare, public transit costs and lodging costs, costs associated with entertaining clients, contributions to retirement plans such as individual retirement accounts (IRAs), and the cost of insurance premiums necessary for your business. Self-employed workers may benefit from seeking help from a tax professional to file tax returns to take advantage of all applicable deductions.
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