For the self-employed, tax season is the time to track expenses and write off as many things as possible to reduce the tax burden. Since you are taxed at a higher rate, anything you can deduct goes a long way to save money. Here are 15 things—some obvious, and others not so much—that you can deduct.
Home Office
If you have an office at home, this deduction could be a big one! Keep in mind that the office must be dedicated for business use—so you can't just work in your bedroom a couple times per week to claim this. Since it is a more complicated deduction, the IRS kindly offers two ways of filing for it: regular and simplified.
For the simplified option, you'd simply multiply the square footage of the room (maximum of 300) by $5. If you had a 250 square foot office, you can deduct $1,250 (250 x $5) using this method.
The regular option is a little more complex, but it could end up saving you a lot more. For this method, you need to figure out the percentage of space your office takes up in relation to the whole house. So you’d divide the square footage of your office by the total square footage of the house to get the percentage. For example, if your office was 250 square feet out of a total of 1,000 square feet in your house, that would be 0.25, or 25%. This 25% can be applied to your mortgage or rent, home insurance premiums, home utilities, and general home repairs. So if you paid $10,000 in rent for the year, you could deduct 25% of this, or $2,500! In this case, you’d secure a huge savings compared to the simplified option above—and you’d still be able to deduct more, factoring the 25% into insurance, utilities, repairs, etc.
Phone
Assuming you have a cell phone that is being used for business purposes, this can be deducted as well. It has to be within reason, though. If you have a separate phone for business, that's a no-brainer; you can deduct these expenses with no issues. If the phone is used for both business and personal use, then you'll need to figure out how often for each. If the phone is used for business 50% of the time, you can deduct 50% of phone and plan costs.
Equipment
If your business requires equipment, this can all be deducted. Whether it's a computer, video camera, printer, or nail gun, keep your receipts and deduct it. Since you are reducing your tax liability, don't settle for buying the cheap stuff. Go with quality instead!
Supplies
Those paper clips, pens, and other supplies for your business can be easily written-off. Just make sure you keep logs or receipts. It can be easy to buy a few supplies and not track your purchases. Those supply runs can add up; just $200 in supply expenses could easily save you $30+ in taxes.
Meals
We all love free food—and a tax-deductible meal is the closest thing. You do need to be careful though, as not all meals qualify for the deduction. Those you are meeting and eating with must be related to your business in some way, whether it’s a client, contractor, advisor.
Normally, it is just a 50% deduction. If the meal was $100, you would deduct $50. But to support businesses because of covid, the deduction more recently has been 100% which will continue through 2022. So make good use of this extra deduction and enjoy local restaurants!
Mileage
As expected, driving a vehicle for business use is tax-deductible. Like the home office deduction, you have two options: mileage and actual.
For the mileage option, you simply multiply the number of miles driven by the per mile rate. In 2021, the IRS allotted a $0.56 rate. If you drove 1,000 business miles for the year, you can deduct $560 (1,000 x $0.56).
For the actual option, you would deduct the true costs of your vehicle: gas, oil changes, repairs, DMV fees, insurance, and depreciation. If the vehicle is only used for business purposes, you can deduct in full. If not, you'll need to figure out how much is used for personal and how much for business, and deduct accordingly. So if your actual costs were $4,000 for the year and you only used 25% of the miles for business purposes, you would only deduct $1,000.
Interest
If you paid any interest on a business loan or business credit card, this can be written-off as an ordinary business expense. Even though this is a great benefit, don't let it make you lax in paying off debt. No interest is always best, so be diligent in cancelling debts so that you don't have to use this deduction!
Education
Anything used for furthering education can be deducted, as long as it pertains to your business. This can be a nice perk as it allows you to pay for things you might really enjoy, such as:
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Conferences
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Online Courses
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Books
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Magazines
Travel
That educational conference by the beach you were looking at the other day can actually lower your tax burden! Travel deductions are a blessing for many. They allow you to visit clients across the country, go to conventions, travel to see family (if they’re board members!) and be able to deduct it all. There are some considerations, though. If you travel with someone who isn't directly related to the business, you can't deduct them. So instead of flying with your family where only your plane ticket can be deducted, simply drive, and all the mileage will be tax-deductible.
Marketing
From digital marketing with Facebook or Google to paper options like newspapers and envelopes, there are plenty of ways to market. All of these can be deducted as a normal business expense.
Insurance Premiums
It may be obvious, but business insurance premiums can be deducted. You can also deduct health insurance premiums if you or a spouse are NOT eligible for an employer-sponsored plan. As premiums can be quite high, this can be a huge savings come tax time.
Self-Employed Taxes
For those who are self-employed, you know the sting of having to pay both sides of the payroll taxes (social security and Medicare). Typical employees pay 7.65% and the employer pays 7.65%. Self-employed individuals have to pay the total 15.3%. Fortunately, these taxes are deductible in the year you pay it. So don't forget to use this for reducing your tax burden!
Technology
Any technology you use can be deducted as an expense. This could be software like a CRM, video editing platform, or project management app. And you will also want to deduct your website and related costs, like hosting and the domain.
Retirement
This deduction allows you to save for the future while reducing your tax liability in a great way. Aside from the limits on your retirement plan, you get to decide how much you want to store away. You could put $0 in. You could put $5,000 in. And depending on your retirement plan, you could even put away $58,000. Moving this big money can easily lower your tax burden. And the growth is tax-deferred, too!