5 Self-Employment Tax Deductions You Should Know About

By Maurie Backman Markets Fool.com

There are benefits to being self-employed -- including the ability to make your own hours and to come and go as you please. But there are also a number of tax benefits to being self-employed, and knowing which write-offs to claim on your taxes can help put more money back in your pocket. From common business deductions to lesser-known deductible expenses, here's a rundown of the best tax breaks you might get as a self-employed worker.

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1. Retirement plan contributions

Putting money aside for retirement can help secure your financial future. But it's not just your 67-year-old self who gets to benefit from retirement plan contributions; you'll also benefit up front from a tax perspective. Any money you put into a retirement account today is money you won't pay taxes on (unless you open a Roth, in which case you won't get the same up-front tax break).

If you're self-employed, you have several options for saving for retirement. You could open a solo 401(k), which works just like a regular 401(k) except it's geared toward individuals. Not only can you contribute up to $18,000 a year ($24,000 if you're 50 or older), but you can also put in up to 25% of your business earnings, for a total of $54,000 ($60,000 if you're 50 or older) for 2017.

You can also open an IRA if you're self-employed. If you stick to the traditional IRA, you'll get to contribute up to $5,500 a year if you're under 50 or $6,500 if you're 50 or older in 2017. If you opt for a SIMPLE IRA, that limit increases, but gets a bit more complicated to figure. You can contribute up to $12,500 to a SIMPLE IRA in 2017 if you're under 50, and up to $15,500 if you're 50 or older. Furthermore, when you're self-employed, you can also contribute to a SIMPLE IRA as an employer and match your own contributions up to a maximum of 3% of salary, or make a flat contribution of 2% of salary, up to a maximum of $5,400. Finally, you can open an SEP IRA, which, for the 2017 tax year, lets you contribute up to 25% of your net earnings, for a maximum of $54,000.

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No matter what type of retirement plan you choose to fund, it can serve as a major tax break. Remember, too, that your investments in that plan will grow tax-deferred, making it a win-win on all fronts.

2. Mileage deduction

If you use your vehicle for business purposes, you can deduct your expenses, provided you maintain an accurate mileage log with details such as travel dates and distances per trip. The easiest way to take this deduction is to use the standard IRS mileage rate, which is 53.5 cents per mile for 2017. Just multiply that rate by the number of miles driven, and you'll know what to claim on your taxes.

3. Business equipment deduction

If you buy equipment (say, a computer, printer, or fax machine) that enables you to do your job, you can depreciate it on your taxes and take a deduction each year over the course of its useful life. You can also deduct operating expenses like office supplies and licensing fees.

4. Home-office deduction

If you work out of your home, you can claim a home-office deduction, provided you have a dedicated space used solely for business purposes. In other words, if you typically work at your kitchen table, you can't take a home-office deduction for that room, because it's not reserved for business use alone. If your space does qualify, you can deduct home maintenance expenses like insurance, electricity, water, and phone service.

To calculate your deduction, take your total yearly costs, figure out how much space your office takes up relative to the size of your home, and claim the proportionate amount. For example, if you spend $3,000 a year on eligible expenses and your home office takes up 200 square feet of your 2,000-square-foot home, you can deduct 10% of $3,000, or $300, on your taxes.

5. Health insurance deduction

If you're self-employed and pay for your own health insurance premiums, you can claim a deduction on your taxes, provided you didn't have the option to participate in a spouse's employer-sponsored health plan. You can also deduct the health insurance premiums you pay for your spouse and dependents.

Remember, tax deductions work by lowering the amount of your income that's subject to taxes. The more deductions you're eligible for, the more you stand to save.

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