A self-employed person usually doesn't have teams of clerks and bookkeepers to look after all the records and nuances of a business, so it can be easy to overlook a tax deduction. The process is complicated because a self-employed person files at least three forms, a schedule for profit and loss, a self-employment tax and a basic 1040 tax return. There's a fourth form for a home office.
A home office can be a major deduction, but it must be a space that's used exclusively for the business, although it does not have to be the only office or used full time. You calculate the percentage of space in the home and deduct a portion of mortgage interest, insurance, utilities and other household expenses. You also can deduct the cost of furniture you buy, such as a computer table, for the office.
Equipment and Supplies
Office supplies are deductible on your profit and loss schedule, along with any expenses for tools and materials. You can also deduct equipment, such as a new computer or printer, or any needed repairs to such equipment. A small business exception allows such deductions up to $250,000 a year, but you have to justify that the equipment is for business use. If you use a computer for personal work half the time, you can only claim half the expense.
Telephone, cellular phone and Internet access fees are deductible up to the percentage they're used for business. If your family shares the home phone, you have to apportion that expense. If you keep a separate line for business, you can deduct the entire amount. The same is true for cellular phones or Internet access; if they're dedicated to the business, they're deductible.
An often overlooked deduction is health insurance. A self-employed person who pays for his own health insurance can deduct that expense, both from the self-employment tax calculation and from the main 1040 return. If you and a spouse share personal health insurance, not through a company plan and the spouse is not an employee, you can deduct both portions.
Retirement contributions are another major tax deduction. If you have an SEP individual retirement arrangement, you can deduct your contributions up to 25 percent of your net business income. You won't have a Social Security deduction like an employee, but half the self-employment tax, which substitutes for that, is deductible.
Contributions and Vehicles
Charitable contributions are another easily overlooked area. You may know you can write off a United Way donation, but you can also deduct such things as the mileage you drove to help a school or food bank as a volunteer. If you bought a vehicle for your business, you can deduct sales tax on it, expenses for operation and maintenance and a portion of the sales price as depreciation.
Travel and Meals
You can also deduct mileage or travel expenses for business. You figure mileage at the IRS standard rate for business driving, but if you work from home that starts when you leave the driveway to leave for a business appointment. You can also deduct half the cost of meals for clients or customers and all the cost of hotels or motels or such things as airplane tickets and rental cars.
- Bankrate.com: A Dozen Deductions for Your Small Business
- Kiplinger: Tax Breaks for the Self-Employed
- Business Insider: 5 of the Most Commonly Missed Tax Deductions
- Wealth Pilgrim: 9 Tax Tips for Self-Employed Folks Like Me
- ABC News: Ten Top Commonly Missed Tax Deductions To Put Cash in Your Wallet
- TurboTax: The 10 Most Overlooked Tax Deductions
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.