Making the decision to venture out on your own and work for yourself can be an exciting, yet frightening prospect. Nevertheless, it is important for those who are self-employed to know and understand the tax implications associated with such a decision. Sure, self-employment can mean taking on a number of risks — but there are a number of benefits and tax deductions available as well.
According to Investopedia, one thing is abundantly clear: If you own your own business, you should make sure you claim each and every tax deduction for which you qualify. Maximizing your tax benefits and deductions while minimizing your costs directly affects the profitability of your venture.
That said, self-employed individuals are encouraged to review the following short list of tax deductions and benefits and seek quality Boca Raton tax debt help to ensure that all possible options have been exhausted.
Have a Home Office? Take Advantage of the Home Office Deduction
In recent years, more and more individuals have decided to start their business from the comfort of their homes. The home office deduction, while it can be complicated, can prove to be quite beneficial to your bottom line when it comes to your overall tax obligations. There are two options for calculating home office deductions: the simplified method and the standard method.
The simplified method requires individuals to multiply the square footage of the home office by a rate currently set by the IRS at $5 per square foot. However, to use this method, the office cannot be bigger than 300 square feet and you will not be permitted to deduct related depreciation.
The standard method permits individuals to deduct a pro-rated amount of actual expenses related to the home office, including things such as property taxes, utilities, maintenance of the home, mortgage interest and more.
Deduct Your Health Insurance Premiums
Self-employed individuals who pay for their own health insurance out-of-pocket (and are not eligible to take part in a plan offered through a spouse’s employer) can deduct all of their dental, health and eligible long-term care insurance premiums. You are also entitled to deduct premiums paid for covering your dependents and spouse.
Business-Related Meals and Entertainment Can Be Deducted…Be Careful Though
If you are traveling for business and/or entertaining clients, the related expenses are tax deductible. It is important to note, however, that only 50 percent of the actual cost of the meal can be deducted (assuming that you keep all of your receipts).
With respect to entertainment deductions, you should be aware that you are only allowed to deduct 50 percent of these expenses as well. There are also a number of restrictions to claiming business entertainment deductions; still, it is possible to make the deduction, so long as you are discussing business with the person being entertained either during, just before or right after the event occurs.
Save For Your Retirement
Contributing to your retirement future can both lower your tax bill now and help you build tax-deferred investment income for the future. This includes making contributions to a simple IRA, a SEP-IRA and/or a solo 401(k). The IRS changes contribution maximums on a yearly basis; however, by way of an example, the contribution limit for a solo 401(k) increased to $53,000 for 2015.
At East Coast Tax Consulting Group, LLC, we are prepared to help self-employed individuals navigate the often complex world of tax deductions and benefits. Contact our office today to schedule a consultation to discuss your specific situation.