Must Know Bookkeeping Tips for the Self-Employed
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Bookkeeping is the single most important task for the self-employed. It can get tedious, but when you keep careful records, you can take advantage of the numerous tax deductions the IRS offers the self-employed.
If you want to take advantage of the tax deductions available to you, here are the top deductions you should know about.
Self-Employment Tax Deduction
Self-employed taxpayers pay 15.3% self-employment taxes. This seems steep, but you can deduct half of the tax paid from your business’s gross income to lower your tax liabilities.
Home Office Deduction
To take the home office deduction, you must first determine what percentage of your home you use solely for business purposes. This can be an office used strictly to run your business or an area of your home used to store inventory. The percentage is then used to calculate the percentage of your utility costs, internet, phone service, and mortgage interest that you can write off.
Rent and Leases
Any expenses you pay for rent or lease payments for cars, trucks, machinery or other necessary equipment to run your business are tax-deductible.
If you use your car for business purposes, you can write off certain expenses including your mileage, car insurance premiums, and maintenance and repair costs. You must keep track of when your car is used for business and personal use though if the car isn’t strictly for business.
If you must travel for your business, you can write off the transportation costs. Keep in mind, that you cannot write off the cost of commuting from your home to your home base (office). But if you travel to other businesses, have multiple locations, or travel elsewhere, you can write off the costs.
You can deduct the costs paid for health insurance. This includes dental insurance and any other health-related insurance premiums.
Business Loan and Credit Card Interest
If you pay interest on a business loan or use a business credit card, you can write off the interest on your tax returns.
As you can see, there are many tax deductions available to the self-employed, but they all require detailed documentation to prove that you are entitled to them. Keeping careful records is essential so that you don’t miss an available deduction and so that you have the necessary proof if you were audited.
If you have any questions about bookkeeping for the self-employed or how to take advantage of these tax deductions, contact us today.