Understanding self-employment taxes can be intimidating, but it’s important to educate yourself so you don’t miss out on deductions that can lower your tax bill. Below is a list of 15 self-employment tax deductions you may be eligible for as a freelancer or a self-employed individual.
1. Self-employment tax deduction
Self-employment tax is the portion of Medicare and Social Security taxes that self-employed individuals are required to pay, but you can claim 50% of this as an income tax deduction. For example, a $1,000 self-employment tax payment reduces taxable income by $500.
2. Qualified Business Income (QBI) Deduction
As of January 1, 2018, self-employed taxpayers can deduct generally 20% of their qualified business income from qualified partnerships, S corporations, and sole proprietorships.
3. Home Office Deduction
If your home office is your primary place of business – and used solely for your business – you are permitted to deduct it from your taxes. You can also deduct a percentage of household expenses such as electricity, gas, water, trash, cleaning services, and certain repairs to the home.
4. Retirement Plans
If you use a qualified retirement plan, such as a 401(k), an IRA, or a simplified employee pension (SEP), you are able to deduct your contributions to that plan.
5. Office Supplies
Provided they are used solely for your business, materials such as tools, basic office supplies, and machinery (including service expenses) may be deducted.
Capital expenses that experience the gradual loss of value (particularly business equipment or buildings) through increasing age, natural wear and tear, or deterioration may be deducted if they are used to generate income for your business.
7. Educational Expenses
Business-related educational expenses, such as continuing education classes, seminars and conferences, conventions and trade shows, and subscriptions and dues for industry organizations can all be deducted.
8. Health Insurance
If you are self-employed or own more than 2% of your S Corporation, you can deduct health insurance premiums for yourself and any dependents under the age of 27.
9. Advertising and Promotion
Any materials or services used to promote your business, such as business cards, web hosting, full media advertisements, etc. are deductible.
10. Internet Fees and Communication Expenses
Internet costs can be deducted, but only the percentage of time that it’s used for business purposes. Cell phone services also may be deducted in the proportion that it relates to business usage. To keep the personal vs. business line clear, it’s recommended to have separate computers and phones for business when possible.
If you use your car for your business, you can take a standard mileage deduction, or take a deduction based on actual costs of fuel, maintenance, licensing, and depreciation. Some public transportation expenses are also deductible. Good record and receipt keeping as proof of business is key here.
12. Bank Fees and Interest Charges
As long as your business bank account is separate from your personal account, some bank fees connected to your business account may be deductible. Likewise, you can deduct interest on credit card balances and loans that are directly linked to your business.
Some business travel expenses can be deducted by 100% if they occur away from your home office and are considered necessary. Under the new Tax Cuts and Jobs Act, certain entertainment write-offs have been removed, but the 50% deduction on food and beverage expenses is still applicable.
14. Security System
If you work from a home office, you can deduct a percent of the expenses of a total home security system, and the purchase and installation of the system can be included when calculating depreciation.
15. Moving Expenses
If you move more than 50 miles from your location for business purposes, you are able to deduct most incurring expenses, such as transportation, packing, and utility connection fees.