If you are self-employed and work from home, then your business may provide several tax deductions. Increasing the business expenditures of the self-employed will decrease the self-employment tax as well as the income tax. This is because the taxes are usually worked out on the gross income on 1040 Schedule C. Make sure that you do not incur unnecessary debts since you are running your business from your home itself.
Check out the 3 tax tips for the individuals who are self-employed.
- Claim for home office deduction – If you are running your office at your home, then you can claim for home office deduction. This is possible till you do not have another office other than your home office. The office you’ve set up at your home should be either in a room or at a space that has been dedicated particularly for carrying out your business. Thus, you’ll not have to pay the cost for extra space for your business. This way, you can also stay away from debt problems. The deduction will consist of a certain percentage of lease payments, mortgage rate of interest, property taxes, homeowners insurance, utility bills, maintenance and necessary repairs.
You need to work out the deductible expenditures by dividing your home office space’s square footage by the square footage of complete living space. Suppose, if your home office is 150 in terms of square feet and the complete living space is 1,500 in square feet, then you may subtract 10% of all your indirect expenses. Subtract 100% of any kind of maintenance, cleaning or repair that are done in the office space. These are known as the direct expenses. You can claim for the direct and indirect expense deductions on Form 8829.
- Retirement plan to decrease tax and save bucks – You need to start a retirement plan to lessen the self-employment tax and the income tax. This will enable you to save your dollars for the future so that you do not fall into debt. Self-employed businessmen can provide till 25 percent of net business income every year. You may establish such kind of retirement planning with the help of the different banks and financial institutions.
You’ll have to shop around in order to get the most suitable rate on your retirement plan. You will not have to pay any tax on this income till you take out money from your retirement fund.
- Claim for deduction on business mileage – You need to claim for deduction on business mileage for the number of miles you’re going to drive for your business. This consist of your post office trips, office supplies for your business, lunch or dinner get together and anywhere you may go for your business. You should maintain good record with the mileage you are driving, for which purpose and on which date. You will not be able to claim for the business mileage deduction if you do not have a good written record.
Calculate the business percent of oil and gas expenses, repairs done on your car, auto insurance, parking fees and the business mileage allowance. You will have to use IRS Form 2206 for providing the necessary details and work out the deductions. If your office is at your home, then the distance from your home office to business place are deductible.
These are the 3 tax tips for the self-employed people.