Deductible Items for Self-Employed Taxes
Self-employed people have a complex tax situation because they are business owners. This means that they have the obligation to file taxes on behalf of their business in addition to their individual taxes. This is accomplished by filing a Form 1040 Schedule C and a Form 1040 Schedule SE. The self-employed taxpayer may deduct one half of the self-employment tax that he or she pays from his or her gross income, but there are many other deductions that people in this situation can take.
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Home Office
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One deduction that many self-employed taxpayers can take is the home office deduction. This requires that the taxpayer file a Form 8829. Self-employed people who want to take this deduction should divide the square footage of the home office into the square footage of the home. This gives the percentage of the expenses of the home overall that the self-employed taxpayer may deduct. For example, if the square footage of a home office is 10 percent of the square footage of the home, the taxpayer may deduct 10 percent of rent and utilities.
Automobile
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Self-employed taxpayers who use their automobiles for business purposes may take deductions related to it. Repairs, maintenance and fuel are all deductible. If the car is solely used for business, then the taxpayer may deduct all of these expenses. If it is also used for personal use, then the taxpayer may deduct only a certain percentage of the costs. As with the home office, the percentage corresponds to the fraction of the use of the car that is for business -- in this case, it is the percentage of time.
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Insurance and Retirement
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If a self-employed taxpayer is not holding down a traditional job, he or she does not receive a benefits package. Often, this means that self-employed people pay for their own insurance. They may deduct the premiums that they pay for their own insurance coverage. Another common component of benefits packages -- a retirement account -- provides an opportunity for deductions to the self-employed.
Other Business Expenses
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A multitude of other expenses are deductible. Self-employed taxpayers should use their judgment to determine which expenses in a given year are legitimately business expenses. For example, not everything in the home office must be a reduced deduction; if an expense is only for business, the taxpayer may deduct the entire amount. Furniture for the home office or a business phone line are examples of expenses that self-employed taxpayers may deduct fully from their business profits.
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