{"id":537,"date":"2021-01-14T15:59:45","date_gmt":"2021-01-14T16:59:45","guid":{"rendered":"http:\/\/www.petermaneurope.com\/?p=537"},"modified":"2025-02-07T13:21:17","modified_gmt":"2025-02-07T13:21:17","slug":"15-tax-write-offs-for-self-employed-workers","status":"publish","type":"post","link":"http:\/\/www.petermaneurope.com\/index.php\/2021\/01\/14\/15-tax-write-offs-for-self-employed-workers\/","title":{"rendered":"15 Tax Write-Offs for Self-Employed Workers"},"content":{"rendered":"<p>It\u2019s getting close to tax-filing season. It\u2019s not everyone\u2019s favorite holiday (unless you\u2019re a nerdy accountant, maybe), but one thing\u2019s for sure: <a href=\"https:\/\/www.goodfinancialcents.com\/best-self-employed-jobs-ideas\/\" target=\"_blank\" rel=\"noreferrer noopener\">being in business for yourself<\/a> allows you a lot of tax write-offs that can save you money.&nbsp;<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-blue-callout-box-no-button-block container gfc-blue-callout-box-no-button-blockwrap gfc-blockwrap blue-callout-box-no-button-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"blue-callout-box-no-button-wrapper\">\n<p class=\"blue-callout-box-no-button-message\">Being in business for yourself allows you a lot of write-offs that can save you money.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p>You might already be aware of these if you\u2019re an experienced business owner. But due to the pandemic, there\u2019s likely a greater number of people who are self-employed this year. Either way, here\u2019s your chance to get some money back.<\/p>\n<div class=\"gfc-table-of-contents gfc-table-of-contents-blockwrap gfc-blockwrap\">\n<div class=\"gfc-table-of-contents-title-container\">\n<h3>Table of Contents<\/h3>\n<\/div>\n<div class=\"gfc-table-of-contents-content\t-container\">\n<ul>\n<li><a href=\"#whos-legally-considered-self-employed\">Who\u2019s Legally Considered \u201cSelf-Employed\u201d?<\/a><\/li>\n<li><a href=\"#how-do-deductions-work\">How Do Deductions Work?<\/a><\/li>\n<li><a href=\"#15-write-offs-all-self-employed-workers-should-know\">15 Write-Offs All Self-Employed Workers Should Know<\/a><\/li>\n<li><a href=\"#bottom-line-15-tax-write-offs-for-self-employed-workers\">Bottom Line &#8211; 15 Tax Write-Offs for Self-Employed Workers<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n<h2 class=\"wp-block-heading\">Who\u2019s Legally Considered \u201cSelf-Employed\u201d?<\/h2>\n<p>In order to claim self-employment tax breaks, you need to be self-employed. Under <a href=\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/self-employed-individuals-tax-center\" target=\"_blank\" rel=\"noreferrer noopener\">IRS tax rules<\/a>, that includes:<\/p>\n<ul class=\"wp-block-list\">\n<li>S-corps<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Partnerships<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Sole proprietors\u00a0<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Independent contractors<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>LLCs and other business designations where you\u2019re the business owner<\/li>\n<\/ul>\n<p>It\u2019s important to note that you can be a business owner <em>and<\/em> be employed by someone else. If you have a day job and freelance as a <a href=\"https:\/\/www.goodfinancialcents.com\/year-of-side-hustle-popular-gigs-in-pandemic\/\" target=\"_blank\" rel=\"noreferrer noopener\">side hustle<\/a>, for example, you\u2019re still considered self-employed due to your side gig despite having a boss at a different organization.&nbsp;<\/p>\n<p>Unfortunately, this cuts out remote workers who have employers. Even though you might work from home now, you can only claim the home office deduction (more on this below) if you\u2019re actually earning money through your own business.&nbsp;<\/p>\n<h2 class=\"wp-block-heading\">How Do Deductions Work?<\/h2>\n<p>Almost all of the tax goodies for small businesses come in the form of a tax deduction. That\u2019s why it\u2019s important to understand how they work \u2014 luckily, you don\u2019t need to be a tax expert. You just need a simple calculator.&nbsp;<\/p>\n<p>Most tax incentives come in two forms: tax credits and tax deductions. Tax credits reduce your tax bill dollar-for-dollar. So if you get a $500 tax credit, for example, you can lower your tax bill by $500.&nbsp;<\/p>\n<p>Tax deductions, on the other hand, only reduce the amount of your business income that\u2019s subject to tax. To calculate how much that actually means to your wallet at the end of the day, you\u2019ll need to know what tax bracket you\u2019re in. For \u201cpass-through entities\u201d like sole proprietors, LLCs, etc., your business income is taxed at the same rate as <a href=\"https:\/\/www.goodfinancialcents.com\/income-tax-guide\/\" target=\"_blank\" rel=\"noreferrer noopener\">your personal income tax bracket<\/a>.<\/p>\n<p>To figure out the value of a business tax deduction, just multiply the amount of the deduction by your tax bracket. So, for example, if you claim a $1,000 deduction for your home office and you\u2019re in the 12% tax bracket, you\u2019ll shave $120 off your tax bill when the dust settles. Unfortunately, this means that tax deductions aren\u2019t quite as valuable for lower-income folks because your tax bracket isn\u2019t as high as a higher-income person.&nbsp;<\/p>\n<div class=\"ca-widget\" data-token=\"8a060fe80de5\"><\/div>\n<h2 class=\"wp-block-heading\">15 Write-Offs All Self-Employed Workers Should Know<\/h2>\n<p>If you qualify as a self-employed worker under the IRS\u2019 definition and own your own business, here are the top tax incentives to remember when filing.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">1. Home Office Deduction<\/h3>\n<p>Let\u2019s start with the most popular tax break for self-employed people: the home office deduction. You can claim this regardless of whether you\u2019re a renter or a homeowner. You\u2019ll need to pass two bars in order to qualify, though: first, your home must be primarily where you do business, and second, your home office will need to be dedicated for the <em>exclusive<\/em> use of your business.<\/p>\n<p>You have two options for how to calculate this:<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>Regular Method.<\/strong> You\u2019ll need to do the math to see what your deduction might be, depending on factors like your mortgage interest, home depreciation, insurance, etc.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li><strong>Simplified Method.<\/strong> This allows you to claim a flat-rate deduction of $5 per square foot (300 square feet maximum), with no need for math beyond figuring out the size of your office.&nbsp;<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\">2. Utilities<\/h3>\n<p>If you work from home, you can also claim a portion of your utilities as a tax deduction. According to the IRS, that includes things like your trash, electricity, internet, gas, and even cleaning services.&nbsp;<\/p>\n<p>You\u2019ll use the percentage of your home that your office takes up. For example, if your home office is 8% of your home, then you can claim 8% of your utility bills as a deduction.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">3. Qualified Business Income Deduction<\/h3>\n<p>Another gem is the <a href=\"https:\/\/www.irs.gov\/newsroom\/qualified-business-income-deduction\" target=\"_blank\" rel=\"noreferrer noopener external\" data-wpel-link=\"external\">Qualified Business Income (QBI) Deduction<\/a>, introduced in 2017 and ending in 2025 (unless Congress changes it, that is). This lets you deduct up to 20% of your \u201cqualified business income\u201d as a self-employed individual.&nbsp;<\/p>\n<p>What actually counts as \u201cqualified\u201d business income? Good question.&nbsp;<\/p>\n<p>That\u2019s generally most of the money you earn in your business, minus any deductions or business losses. Certain things don\u2019t count, such as interest income from your business savings account or any capital gains or losses from <a href=\"https:\/\/www.goodfinancialcents.com\/should-you-invest-all-your-money-in-stocks\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">investing in stocks<\/a>. For a full list, see the IRS\u2019 QBI resource.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">4. Startup Costs<\/h3>\n<p>So many people were forced into self-employment, whether they wanted it or not, in 2020. If that\u2019s you, take heart: You can deduct up to $5,000 in startup costs and $5,000 in organizational costs as long as your business costs less than $50,000 to start.&nbsp;<\/p>\n<p>So whether you need to buy a new laptop, have a lawyer draft agreements and contracts, file business paperwork, or other expenses to open your business, you should be able to get at least some of the expense back.<\/p>\n<h3 class=\"wp-block-heading\">5. Health Insurance Premiums<\/h3>\n<p><a href=\"https:\/\/www.goodfinancialcents.com\/insurance-quotes\/health\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">Finding health insurance<\/a> that doesn\u2019t give you a heart attack is one of the major challenges of self-employment, especially if you don\u2019t have a spouse with access to a workplace plan.&nbsp;<\/p>\n<p>A small consolation is that you might get some of that money back in the form of a deduction for paid premiums toward medical, dental, and even qualified <a href=\"https:\/\/www.goodfinancialcents.com\/5-best-long-term-care-insurance-of-2022\/\" data-wpel-link=\"internal\" rel=\"noopener\">long-term care insurance plans<\/a>. This even includes health insurance that you purchased to cover your family members, including your kids and your spouse.\u00a0<\/p>\n<p>However, there are two big catches: first, your business must have made a profit that year. Second, you can only take this deduction if you aren\u2019t eligible for an employer-sponsored health care plan, whether from a day-job employer or even from a spouse\u2019s employer.<\/p>\n<h3 class=\"wp-block-heading\">6. Liability Insurance Premiums<\/h3>\n<p>Speaking of insurance, another big bummer for self-employed workers is paying for liability insurance. The truth is that almost all self-employed people should purchase some sort of liability insurance since they\u2019re doing work for money and that can easily lead to disputes.\u00a0<\/p>\n<p>If you run a dog grooming business, for example, you might need general liability insurance to protect yourself against unhappy pet owners. Even if you&#8217;re a digital entrepreneur working from home, it\u2019s a good idea to purchase media liability or professional liability insurance. Either way, you can deduct these premiums from your taxes.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">7. Materials for the Goods That You Sell<\/h3>\n<p><a href=\"https:\/\/www.goodfinancialcents.com\/hobbies-that-make-money\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">Crafty business owners<\/a> rejoice! You can deduct the cost of the materials you buy to assemble the items you sell. To take this deduction, though, you\u2019ll need to tally your starting and ending inventories each year. It\u2019s not as simple as just claiming your expenses for the materials you purchased.<\/p>\n<p>So if you have an ugly Christmas sweater business, for example, you can deduct the cost of the yarn and tools used to make them. This applies to non-craft-related businesses, too, such as eBay and Amazon resellers, publishers, plant nurseries, and more.<\/p>\n<h3 class=\"wp-block-heading\">8. Self-Employment Tax Deduction<\/h3>\n<p>Another reality of being self-employed is you\u2019ll need to pay twice the amount of FICA taxes (<a href=\"https:\/\/www.irs.gov\/taxtopics\/tc751\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">Medicare and Social Security<\/a>). Normally, your employer pays for half, but since you\u2019re your own employer, you\u2019ll need to pick up the tab for that share, too. The good news is that you can at least deduct the \u201cemployer\u201d portion of self-employment taxes (i.e., half of the total amount) that you pay.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">9. Retirement Contributions<\/h3>\n<p>If you contribute to a retirement plan for self-employed people such as a <a href=\"https:\/\/www.goodfinancialcents.com\/open-sep-ira-contribution-limits-and-rules\/\" data-wpel-link=\"internal\" rel=\"noopener\">SEP IRA<\/a> or <a href=\"https:\/\/www.goodfinancialcents.com\/solo-401k-contribution-limits-rules-plans\/\" data-wpel-link=\"internal\" rel=\"noopener\">Solo 401(k)<\/a>, and you contribute to it during the year, you can deduct those contributions from your income.\u00a0<\/p>\n<p>This is similar to how the <a href=\"https:\/\/www.goodfinancialcents.com\/traditional-ira-rules-limits\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">deduction for a Traditional IRA<\/a> works. Unfortunately, if you work for an employer, you can\u2019t deduct your contributions to your workplace plan, such as your regular <a href=\"https:\/\/www.goodfinancialcents.com\/401k-investment\/\" data-wpel-link=\"internal\" rel=\"noopener\">401(k)<\/a> or <a href=\"https:\/\/www.goodfinancialcents.com\/403b-maximum-allowable-contributions\/\" data-wpel-link=\"internal\" rel=\"noopener\">403(b)<\/a>. The rules for how the deduction works can get a little wonky though, especially if you have employees, so it\u2019s a good idea to work with a CPA to claim this deduction.<\/p>\n<h3 class=\"wp-block-heading\">10. Car Mileage<\/h3>\n<p>Rideshare drivers here\u2019s one for you! If you use your personal car to drive around for your business, you can deduct the cost on either a per-mileage basis or by keeping track of your car expenses. The <a href=\"https:\/\/www.irs.gov\/tax-professionals\/standard-mileage-rates\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">mileage rate changes every year<\/a>: for example, for 2023, it\u2019s 65.5 cents per mile.\u00a0<\/p>\n<p>Taking the standard mileage rate is probably easiest, and you can either keep track of your mileage in a physical log book you keep in your car, or through one of several apps, like MileIQ or SherpaShare, just for this purpose.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">11. Travel Expenses<\/h3>\n<p>In addition to driving around, you might travel to industry conferences or meet clients as a part of your business. You can deduct the cost of these travel expenses, such as lodging, transportation, meals, baggage fees, etc.&nbsp;<\/p>\n<p>Sometimes it\u2019s easy for the lines to blend between business and personal in this category. You\u2019re not allowed to deduct any entertainment costs (even if you\u2019re taking clients out to a Broadway show, for example). This means if you travel somewhere exotic for a work conference and stay a few extra days for leisure, you can\u2019t deduct any expenses on those personal vacation days.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">12. Association Memberships<\/h3>\n<p>It\u2019s especially important to stay active and network with other people if you\u2019re self-employed. That\u2019s where a lot of membership dues come in, and sometimes these can be substantial depending on what industry you\u2019re in.&nbsp;<\/p>\n<p>You can deduct the cost of any association memberships, though, as long as it\u2019s a part of your business. For example, if you\u2019re an independent board game designer, you can write off your membership dues in the Game Manufacturer\u2019s Association.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">13. Advertising<\/h3>\n<p>Did you pay for ads on Facebook, Instagram, Twitter, Pinterest, or another social media site? If so \u2014 or if you paid for any other advertising at all, even to put your business in an old-fashioned phone book or roadside billboard \u2014 you can deduct these expenses from your income.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">14. Office Supplies and Software<\/h3>\n<p>Whether you\u2019re a service-based business or a product-based business, you\u2019ll still need to have an office so that you can manage your company. You\u2019ll probably need supplies like pens, printers, computers, and software to perform tasks like tracking your time, accounting, drafting your <a href=\"https:\/\/www.goodfinancialcents.com\/best-free-online-budgeting-tools\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">business budget<\/a>, and more. You\u2019re eligible to deduct all of these expenses from your income.&nbsp;<\/p>\n<p>You can also deduct equipment and furniture for your business this way. You might see \u201cSection 179\u201d while doing your research. This lets small businesses claim these types of expenses as a one-off deduction in the same year the items are purchased (as opposed to writing off depreciation on these purchases slowly over the next few years).<\/p>\n<p>If you really need a Greek-style thinking couch and you can make a case to the IRS that it\u2019s for your business use, this can be a valuable deduction, too.<\/p>\n<h3 class=\"wp-block-heading\">15. Subscriptions, Books, Magazines, Courses, and Other Education<\/h3>\n<p>There\u2019s no one business playbook that applies to all small business owners. Even though the principles of running a business are all the same, each business is unique. Whether your business is baking pretzels, writing articles, landscaping, or brewing beer, you\u2019ll need to keep up to date in your industry by reading books, subscribing to trade magazines, and taking courses.&nbsp;<\/p>\n<p>Some of these costs can add up big time. If you need to travel across the country to attend a training workshop, for example, even just the enrollment fee can be huge. And although subscriptions are generally smaller purchases, over time, they can add up to a lot of money. Luckily, you can write off these expenses as deductions from your income.&nbsp;&nbsp;<\/p>\n<h2 class=\"wp-block-heading\">Bottom Line &#8211; 15 Tax Write-Offs for Self-Employed Workers<\/h2>\n<p>There\u2019s no doubt that running your own business is stressful. Even just perusing this list, you might be overwhelmed with thinking about <em>how<\/em> exactly these deductions all work, and that\u2019s valid.&nbsp;<\/p>\n<p>There are a lot of deductions, and some of them have specific rules for how you can claim them, such as the home office deduction. It\u2019s useful to know what these deductions are so you can plan for how to use them in your business.<\/p>\n<p>We still recommend working with a CPA to guide you through the tax rules for these write-offs so that you can focus on what really matters to your business \u2014 the work that brings in cash.&nbsp;<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-get-started-link-block gfc-get-started-link-blockwrap gfc-blockwrap container get-started-link-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"get-started-link-wrapper\"><a href=\"https:\/\/www.goodfinancialcents.com\/how-to-pick-financial-advisor\/\" class=\"get-started-link\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"internal\">Related: How To Pick A Financial Advisor<\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\n<p>The post <a rel=\"nofollow noopener\" href=\"https:\/\/www.goodfinancialcents.com\/tax-write-offs-self-employed\/\" data-wpel-link=\"internal\">15 Tax Write-Offs for Self-Employed Workers<\/a> appeared first on <a rel=\"nofollow noopener\" href=\"https:\/\/www.goodfinancialcents.com\" data-wpel-link=\"internal\">Good Financial Cents\u00ae<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s getting close to tax-filing season. It\u2019s not everyone\u2019s favorite holiday (unless you\u2019re a nerdy accountant, maybe), but one thing\u2019s for sure: being in business for&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":288,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[14],"tags":[],"_links":{"self":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts\/537"}],"collection":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/comments?post=537"}],"version-history":[{"count":1,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts\/537\/revisions"}],"predecessor-version":[{"id":538,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts\/537\/revisions\/538"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/media\/288"}],"wp:attachment":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/media?parent=537"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/categories?post=537"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/tags?post=537"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}