What You Need to Know About Business Back Taxes & Tax Debt

9 Tax Deductions You Should Be Claiming if You’re Self-Employed

reviewed by Robin T Young
June 10, 2018

There are a lot of risks associated with being self-employed. Sometimes, that means that you take on extra expenses that you don’t have to deal with when you’re employed by another person.

You’re the one responsible for a lot of things, too, from generating income to paying the bills and keeping track of your taxes.

Luckily, there are tax breaks available to lessen the hardship from these extra costs. And if you qualify for any of these tax deductions, you need to claim every one of them.

Your profitability depends on making your costs as small as possible and using all of the resources given to you.

We’ve written this guide to help walk you through 9 tax deductions available to you, read on to learn more.

1. Self Employment Tax Deduction

This particular deduction refers to the part of Medicare and Social Security taxes that you have to pay as someone who is self-employed. Anyone working has to pay these taxes.

For the 2016 and 2017 tax season, these taxes come out to be 7.65% for employees and 15.30% for those who are self-employed.

Paying extra taxes to work for yourself stinks. But luckily you can deduct half of your self-employment tax from your net income because the IRS treats the employer part of the self-employment tax like a business expense.

You also only pay that tax on 92.35% of your net income, which is what’s left after you deduct the rest of your business spending.

That first 7.65% needs to be paid no matter who you’re working for, at least when you’re self-employed you can deduct part of it.

2. Home Office Tax Deduction

This is one of the more complicated deductions. Basically, you can deduct the amount you pay for any workspace that you use regularly and exclusively for your business, whether you rent or own.

This done on the honor system, but be prepared to prove it if you’re ever facing an audit. A good idea is to write up a diagram of your workspace with accurate measurements and submit it to prove your deduction is necessary.

You can deduct the business percentage of your mortgage interest, home depreciation, property taxes, utilities, homeowners insurance, and home maintenance that you have to pay during the year. If your home office takes up 10% of your home, then you deduct 10% of your yearly electricity bill.

You can choose between the standard method and the simple method when deciding how to calculate your home office deduction. The good thing is that you don’t have to make the same choice every year.

The standard method means that you have to calculate your actual home office expenses. The simplified method allows you to multiply a specific rate that the IRS decides by your home office footage.

There are some limits to the simple option. Your home office has to be below 300 square feet and you cant deduct your home’s depreciation or any home-related itemized deductions.

Evaluate your tax situation

By evaluating your tax situation, you can identify areas where you may be able to reduce your tax burden and make informed decisions about your financial future.


3. Internet and Phone

Even if you don’t claim your home office on your taxes, you can still deduct your business phone, fax, and internet expenses. Just make sure you’re only deducting the stuff that is related directly to your business.

If you’ve got one phone, don’t deduct your entire bill, because you clearly use this for both business and personal calls. If you’ve got a second phone line, you can deduct all of that.

4. Health Insurance Premiums

If you pay for your own health insurance, you can deduct your health, dental, and certain long-term care insurance premiums, as long as you weren’t eligible for insurance under your spouse’s employer.

You can also deduct the premiums that you had to pay to cover your spouse, dependants, and children under the age of 27.

5. Meals

When you are traveling for business or entertaining a client, a meal is a tax-deductible business expense. It cant be lavish or extravagant and you can only deduct half of the meal’s cost.

Before you consider buying concert tickets and chalking it up as a business expense, keep in mind that the IRS has a lot of restrictions on claiming business entertainment as a tax deduction.

You must conduct business during, immediately before, or immediately after the event, and even then only half of your expenses are deductible.

Keep impeccable records of what business you did, when you did it, who you did it with, and how it relates to the entertainment expense. And keep all your receipts.

6. Travel

In order to deduct travel expenses, it has to be longer than a work day, require you to rest, and take place outside of the city where your business is.

Also, make sure you have a business purpose planned before you leave and engage in business activity while you’re gone.

100% of your travel expenses related to business are deductible except for meals and entertainment. If you’re mixing business with pleasure, it gets more complicated.

7. Car

In order to claim your car for business expenses, you have to keep expert records of the dates, mileage, and reason for every single trip and never try to claim your leisure car trips as business.

8. Interest

Your interest from a business loan is tax-deductible as well. Any credit card interest that comes from business expenses is also tax deductible. Still, avoid borrowing money because you only make some of your money back through deductions.

9. Publications and Education

Any specialized magazines, journals, and books related to your business are also eligible as a tax deduction. A newspaper wouldn’t work, but a subscription to Writer’s Digest might work if you are a freelance writer.

If you would like to deduct education expenses, it has to be education directly related to your business as well. You cant deduct the cost of classes to learn about a future business endeavor.

Self-Employment Tax Deductions

The world of self-employment tax deductions is actually a little more complicated than this simple guide could get into. After all, taxes aren’t ever hassle-free. But at least now you have a basic understanding of tax deductions for a self-employed person.

If at any time you’re not sure if your expense is legitimately deductible, ask whether or not it’s normal and necessary for your line of work. Because that’s what the IRS will be asking as well.

For more information on the tax code or paying off back taxes, visit us today.

Clinton F Wassor

Clinton F. Wasser, holding a Master of Science in Legal Studies of Taxation, brings a wealth of expertise in tax planning and compliance to his writing. With a career rooted in the workings of the tax landscape, Clinton navigates difficulties with finesse. Beyond his professional accomplishments, he generously volunteers his time to educate high school students about the nuances of taxes. As an author, Clinton marries his real-world experience with a passion for simplifying tax concepts. He has found that his technique empowers readers to better understand the world of taxation.
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