Being self-employed has its benefits. When you work for yourself, you get to call the shots, set your own hours, and reject work you don't find stimulating or worth your while.
But from a tax perspective, self-employment can be tricky. Not only are you required to pay estimated taxes on your earnings, but you'll also need to be strategic to avoid losing too much money to the IRS. If you're self-employed and are gearing up to file your return this year, here are a few important tax breaks you should be aware of.
1. Mileage on your vehicle
If you use your personal vehicle for work purposes, whether it's driving to visit clients or getting around town to pick up job-related supplies, you can claim mileage on your tax return. For the 2018 tax year, the IRS will let you claim 54.5 cents per mile you drive in the course of doing your job. For 2019, it's $0.58 a mile. If you're going to take a deduction for mileage, however, be sure to maintain a detailed log that shows how far you drove throughout the year and what the driving was for.
2. Business travel expenses
If you do any travel in the course of your business, such as to attend conferences or seminars, you're allowed to deduct the costs associated with those trips. That includes line items such as airfare, baggage fees, trips to and from airports, car rentals, and hotel stays. That said, you can only claim expenses for trips that are work-related in nature. You can't book a weeklong trip to a beach resort, have one 30-minute discussion with an associate staying there at the same time, and call it a business expense.
3. Health insurance premiums
One downside of being self-employed is having to cover the cost of health insurance yourself. The good news, however, is that you're allowed to deduct your health insurance premiums on your taxes, and if you pay for insurance for your spouse or children out of pocket, you can deduct those costs as well. However, you're only eligible for this deduction if neither you or your spouse is eligible to participate in an employer-subsidized health plan.
4. The home office deduction
If you're self-employed and do your job from home, you might be eligible to claim a home office deduction on your taxes. To do so, you must use that home office space exclusively for business (meaning, setting up a laptop on your kitchen counter doesn't count), and that home office must constitute your primary place of business.
You can claim this deduction in one of two ways. The simplified method will give you $5 back per square foot of office space you have, up to a maximum of 300 square feet, or $1,500. The standard method allows you to tally up your home expenses and deduct the amount that's proportionate to the amount of space your office takes up. For example, if you spend a total of $20,000 on home expenses (think electricity, maintenance, repairs, property taxes, and so forth), and your office takes up 10% of your home, then you get to claim $2,000.
5. The Child and Dependent Care Credit
As a self-employed worker, you can't write off the cost of child care completely (though it would be nice). What you can do, however, is get a portion of your child care costs back via the Child and Dependent Care Credit. This credit allows you to claim up to 35% of up to $3,000 in child care costs for one child, or up to 35% of up to $6,000 in child care costs for two or more children. All told, that credit could be worth as much as $2,100, depending on your income.
6. Half of your self-employment tax
All workers are required to pay Social Security and Medicare taxes. Salaried workers are liable for half that amount, while their employers pay the other half. Self-employed workers, on the other hand, are responsible for paying Social Security and Medicare taxes in their entirety (otherwise known as self-employment tax). The good news, however, is that you're allowed to deduct half of your self-employment tax when you file your return, which can help lessen that blow.
If you're self-employed, it pays to reap all of the tax benefits you're eligible for. Make sure to claim these items, as applicable, on your taxes so that you can save more money and give less away to the IRS.