For more than 10% of the population, tax season arrives with the daunting task of accounting for their small business as a self-employed taxpayer. What is and isn’t deductible is the source of much confusion. Here are a few tips to help guide the self-employed.
One of the most commonly asked questions is “Can I take a home office deduction?” You can deduct a portion of your home expenses if the space used for the home office is a dedicated work space for your business. The IRS now allows a flat amount of $5 per square foot with a maximum of 300 square feet. This is like the mileage rate in that you don’t have to keep actual expenses but you still must meet the exclusive use requirement.
Office supplies can be deducted such as pens, paper, post-it notes, highlighters, paper clips and so on but make sure you keep all receipts. In addition to office supplies, you can deduct advertising and marketing expenses such as the costs associated with maintaining and hosting a website, business cards, letterhead and other marketing materials.
Another cost that is often overlooked is the cost of processing credit cards. With the increasing use of mobile payments such as PayPal and Square, it is important you include the fees charged by these processors as a deduction.
Don’t overlook office furniture such as desks and chairs or equipment such as computers and printers. You may have to depreciate some of these items instead of deducting the cost in the year purchased but they are still valuable deductions
Many self-employed taxpayers properly deduct the costs associated with contract labor but most fail to issue a form 1099-Misc. Anytime you pay a contract worker more than $600 in a year, you should issue them a 1099-Misc. Failure to do so could result in a significant fine.
There are many tax deductions for self-employed taxpayers. There are also many apps and software packages to help you track your income and expenses. Let us know if we can help ensure you are capturing all your deductions in an efficient and effective manner.