The Three Top Tax Benefits for the Self-Employed
Being self-employed comes with an array of risks and entrepreneurial investments that you would never face when working for someone else. It means taking complete responsibility of your income, and working hard to piece together a decent profit. However, being a self-employed individual isn’t just about unnecessary risks and expenditures – it also comes with a list of aces. For one, here are the three tax benefits exclusive to self-employed individuals in the US that help reduce business owner taxes:
Tax Deductions
Self-employed individuals must pay the employer portion of Medicare and Social Security. While employees only pay 7.65% a year, the self-employed must pay 15.30% of these taxes. Thus, you are paying for being your own boss. However, this additional burden is not really a burden. This is because of the self-employment tax deduction, which enables you to deduct half of your self-employment tax from your total income each year.
Internet and Phone Expenditure
As a self-employed person, you are free to deduct expenses incurred by your business for phone, internet and fax, regardless of whether you claim a home office deduction. You must, however, only deduct costs that apply specifically to your business. You must keep in mind to only deduct a portion of your bills if you use your phone, fax and internet for both home and office purposes.
Home Office Deduction
As a self-employed individual, you can deduct the expenditures for any workspace that you use exclusively for your business on a regular basis. This deduction is applicable whether you own or rent your workplace. In case you use your home as your office, you are free to deduct mortgage interest, home depreciation, property taxes, utilities, homeowners insurance and so forth that are applicable to the part of your home that you use as your office. However, keep in mind that these expenses can be audited, and therefore you must prepare accordingly.
Read more great tips like these on my CPA blog.
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