Self-employment has its perks: Managing your own time. Only being responsible to your clients and yourself (no middle management – Wahoo!). Being able to sing at the top of your lungs while you work. But one of the downfalls comes around the middle of April every year: taxes.
Working for yourself means you are responsible for your taxes. There’s no employer deducting from your wages as you go. Thus, it’s up to you to keep track of your earnings, and very importantly, understand what you can and cannot write off as a deduction.
Knowing what you can and cannot write off gets tricky, fast. Here are a few basics to get you started:
The “Should Write Off” Category
You are allowed – and entitled to – write off any business expense you accrue and also certain living expenses.
Related Article: 5 Tax Deductions Small Businesses Shouldn’t Fear Taking
1. Health Insurance
Hopefully you have your own health insurance policy so you can get regular check ups and just in case of an emergency. You can write your premiums off each month.
2. Work Related Gas and Travel
Anytime you’re driving to meet a client, you can write off the mileage and any tolls associated with your drive. Keep a logbook in your car and note the starting mileage, ending mileage, date and who you met with – at the end of the year, this simplifies your process.
3. Equipment and Maintenance
You can’t do your job without the right equipment. For example, a writer needs a laptop to their job. If they choose to purchase a new computer, a great set of pens, that is a write off.
4. Home Office Set Up
Working from home means you have a home-office: a space dedicated to your work, and your work alone. Measure the square footage, and you are able to write that off. Plus, an appropriate percentage of utilities (internet, gas, electric) can be written off too.
The “Should Not Write Off” Category
Not everything is tax deductible, unfortunately. There are a few common pitfalls that self-employed people fall into, and we want to make sure you do not.
Not a Dependent
Kids are dependents. Pets are not. Even if you really love, and spoil, Fido. Still not.
Even though weddings are expensive, unless you directly work in the industry there is not part of weddings – hosting or attending – that are you are able to write off. Even if your business partner makes a toast.
Above Fair Market Value
Your contribution to a non-profit like public radio earned you a reward – sweet! However, you can only deduct the amount that exceeds the fair market value of the benefit receive.
Anything You Can’t Back Up
If you don’t have proof that you your claims are deductible, you probably don’t want to claim them. In the off chance that you are audited by the IRS, you don’t want to be caught in a pickle of having to pay a fine.
If you are ever unsure about what can and cannot be written off, it’s wise to have a professional take a look at your tax return before submitting it. Connect with me on TaxConnections and I can look it over for you and offer advice on what you can and cannot write off for 2014.
Original Post By: Barry Fowler
This article was published by TaxConnections
Author: Barry Fowler is licensed to represent taxpayers before the Internal Revenue Service and is a longstanding member of several tax industry professional organizations. With experience in the tax and finance industry spanning over 20 years, his expertise includes tax resolution, personal financial planning, tax return preparation, financial statements, and general ledger bookkeeping.