Tax deductions for self-employed individuals













With the current uncertain economic times, you might think of starting a side business to complement your income or even becoming your own boss! Luckily, there are many tax deductions in the US tax code just for you!


 
Who is considered self-employed?

You are considered self-employed if:
•    you own a business that does not exist independently from you and you make all the business decisions and are entitled to 100% of the profits
(sole proprietor)
•    you carry on a trade that is not incorporated (such as a
Single member LLC)

To know more about other entity structures: https://www.kbfinancials.biz/la-consultation---structures-juridiques.html



1 – Car expenses deduction


Self-employed individuals get the most generous and straightforward deduction when using their personal car: they have the choice between deducting actual costs or deducting a mileage standard rate. With the standard rate, you get a 57.5 cents deduction for every business mile (tax year 2020).

To know more about the travel expense deduction: https://www.kbfinancials.biz/the-travel-expenses-deduction.html



2- Home office deduction


If you are self-employed and your use a room in your home exclusively for business, you can elect to deduct a prorata of your actual home expenses or you can elect to deduct a standard rate of $5 per square foot for your home office.
To know more about the home expense deduction:
https://www.kbfinancials.biz/home-office-deduction.html



3- Self-employment tax deduction

If you're self-employed, you will have to pay 100% of your Social Security and Medicare taxes (
self-employment tax). The Self-employment tax represents 15.3% of your business earnings, broken down as follows:  Social Security portion (12.4%) and Medicare portion (2.9%). With the self-employed tax deduction, you can deduct 50% of your self-employment tax on your tax return.



4- Self-employed retirement deduction (
SEP / IRA)

If you self-employed, you can open retirements plans that will give you two main tax benefits: first, the earnings accumulate tax free in the account and second, you can deduct up to $56K (SEP)/ $6K (IRA) of your plan contributions on your tax return.
To know more about other retirement tax benefits: 
https://www.kbfinancials.biz/save-for-retirement.html



5- Self-employed health insurance deduction

If you are self-employed, you can deduct 100% of your health insurance premiums.  

To know more about health insurance tax benefits:  https://www.kbfinancials.biz/tax-benefits-for-your-medical-expenses.html



6- Qualified Business Income deduction (QBI)


If you are self-employed, you can deduct up to 20% of your business income under the QBI deduction.

To know more about QBI: https://www.irs.gov/newsroom/qualified-business-income-deduction



For assistance in identifying deductions that apply to your tax situation, contact Karine Bauer, EA. As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional.
Karine Bauer, EA is an IRS Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. Karine is also a Quickbooks Pro-Advisor and a member of the Association of Chartered and Certified Accountants (ACCA). She is an experienced tax professional with more than 20 years of international experience.

Bear in mind the date of this article as tax laws change over time

Updated on September 8th, 2021