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The Top 10 Deductions if You're Self-Employed


STG Accounting

August 17, 2023

Being self-employed has its advantages — you can choose your working hours, decide who you work with, and take time off when you want to. But the major disadvantage of being self-employed comes during tax season.

Figuring out your taxes as a self-employed person can be tricky. Still, you can minimize your tax liability by claiming as many deductions for self-employed people as possible. Here are 10 of the most critical tax deduction benefits.

1. Self-Employment Tax Deduction

If you work with an employer, that employer pays you and your employer split the deduction for Medicare and Social Security. But when you’re self-employed, you’re responsible for both portions, which means more money out of your pocket.

However, there is a silver lining. When your income tax gets calculated, you can deduct half of your self-employment tax. Why? The “employer” portion of the tax is a business expense, and the IRS lets you deduct qualified expenses.

2. Home Office Deduction

The home office deduction is one of the more complex deductions for self-employed people, but if there’s part of your home you use exclusively for work, you can deduct a certain amount from your taxes. The amount is usually based on the square footage of the office.

3. Health Insurance Premiums Deduction

You can deduct your premiums if you pay for your own health insurance. This deduction includes health, vision, and long-term care insurance.

4. Vehicle Use Deduction

If you use your car for work, you can get self-employed deductions for mileage on work-related trips. The IRS has a standard reimbursement rate per mile.

5. Phone and Internet Deduction

If you use your phone or internet for work, you may be able to deduct some of the costs of each. You will want to ensure that everything you deduct is directly related to your business.

6. Retirement Plan Contributions Deduction

You can also deduct your contributions to qualified retirement accounts. However, there are caps on how much you can contribute annually. Always ensure you understand the limits before contributing.

7. Office Supplies Deduction

If you buy supplies like copy paper, pens, etc., you can deduct their cost from your income. However, if you don’t use them within a year, you’ll instead be reimbursed for depreciation. For instance, if you buy a laptop for work, you can deduct the amount that its value depreciates each year.

8. Startup Costs Deduction

You might qualify for this major deduction if you’ve just opened up your business. If you’re in your first year of business, you can deduct up to $5,000 in startup costs.

9. Business Insurance Deduction

Business insurance premiums can protect you when disaster strikes. If you pay for business insurance, you can deduct that, too.

10. Education Deduction

You also can deduct the costs of courses or education that help you develop skills for your current business. However, this deduction won’t cover the education you need to enter a new line of work.

Your Business Taxes, Done Right

These 10 key deductions can make a significant difference in the total taxes you owe the IRS. And missing even one of these self-employed deductions may mean you end up paying thousands more than you should.

At STG Accounting, our goal is to help small businesses like yours succeed. We handle taxes, bookkeeping, and just about any other financial service you may need. Want to learn how we can help your small business? Contact us today!

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