Being self-employed has its perks, not the least of which is getting to take a deduction for the business expenses you incur throughout the year. Now if you're worried that claiming business expenses will increase your risk of an audit, fear not -- as long as you keep detailed records and know exactly what and how much to write off, you can save yourself money on your taxes without getting into trouble with the IRS. Here are some common tax-deductible business expenses you may be able to claim.
Direct business expenses
Most self-employed folks need to spend a little money to make money. The good news is that the items you purchase that directly enable you to do your job are tax-deductible. If you spend $50 a month on office supplies, for example, that's a deduction right there. Similarly, if you're a writer, you can deduct the cost of a laptop, printer, or any other piece of equipment that's directly related to your business.
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Home office deduction
If you work out of your home, you may be eligible for a potentially lucrative home office deduction. To qualify, however, you'll need to meet certain criteria. First, you must have a specific area of your home used exclusively for business -- setting up shop in your dining room doesn't count. Second, your home must serve as your primary place of business.
Provided you meet these requirements, you can deduct a portion of your home expenses -- like your mortgage payment, property taxes, homeowners' insurance, water, electricity, and heating bills -- on your taxes. To calculate your deduction, figure out how much space your home office takes up relative to the rest of your home, and then deduct that percentage of your total expenses. If, for example, your home office constitutes 10% of your house's total square footage, you can deduct 10% of your total home expenses.
If you use your vehicle for business purposes, you can take a mileage deduction provided you keep an up-to-date log detailing your various trips. Your log must include specific trip dates, lengths, and purposes. So if, for instance, you travel 80 miles one day to visit a client, you'll need to record your vehicle's mileage at the start of the trip, your vehicle's mileage at the end of the trip, the date of the trip, and its purpose.
Once you figure out how much mileage you're eligible to deduct for the year, the easiest way to calculate your deduction is to apply the standard IRS rate. For 2016, the rate was 54 cents per mile. In 2017, however, it dropped slightly to 53.5 cents per mile. If you drove 4,000 eligible miles in 2016, you'd get to claim a $2,160 deduction.
Any time you take a trip for work purposes, you can deduct the total cost of transportation and lodging on your taxes. This includes air or rail fare, your hotel room, and the cost of a rental car. You can even write off the cost of meals on the go, though that deduction is limited to 50% of what you spend.
Furthermore, you can only deduct a trip whose primary purpose is to conduct business. If, for example, you visit another state for a four-day vacation and squeeze in a couple of two-hour business meetings, that doesn't count as a legitimate deduction. On the flip side, if your trip involves four full days of meetings but you squeeze in two hours of sightseeing on your way out, you should have no problem taking a deduction.
Health insurance premiums
One drawback of being self-employed is having to pay for your own health insurance. On the plus side, you can deduct the cost of your health insurance premiums on your taxes in full provided you didn't have the option to participate in another health plan, such as one offered by your spouse's employer. Furthermore, if you're the sole breadwinner in your family and you pay for your spouse or dependents' health insurance, you deduct the cost of their premiums as well.
We all want to save as much money on our taxes as possible, and knowing what business expenses to deduct can put a sizable chunk of cash back in your pocket. Just make sure you have solid records to back up the various deductions you claim. Otherwise, you risk having your return audited, and that's certainly far from ideal.
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