The most overlooked deductions and credits for the self-employed

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Too often, those who are self-employed, whether on a full-time basis or just doing some freelance work on the side, miss out on beneficial tax deductions to which they are entitled.

Among the most significant is the home-office deduction. To qualify, however, you must have a portion of your house that you exclusively for your business. If you meet that bar, you can deduct part of your utility bills, typically based on the square footage of your house or apartment, and some of your homeowner’s or renter’s insurance, too.

Don’t be reluctant to take advantage of this helpful tax break if your business is a qualifying one that’s based out of your home. To keep it simple, the IRS allows the self-employed to deduct $5 for each square-foot that meets the requirements of the deduction.  Depending on the size of your home office, this deduction can save you a fair amount of money.

The American Rescue Plan Act made tax credits available to self-employed individuals for sick and family leave if you were unable to work due to certain COVID-19-related issues during the first nine months of 2021.

The IRS has listed a number of conditions around this tax credit, including:

– You or someone you were caring for was subject to a federal, state or local quarantine or isolation order due to COVID-19.

– You or someone you were caring for was advised by a healthcare provider to self-quarantine due to COVID-19.

– You experienced COVID-19 symptoms and were seeking a medical diagnosis.

– You were exposed to COVID-19 or waiting for test results.

To learn more about these credits and others related to the pandemic, visit the IRS website and check Form 7202.

Keep in mind, too, that there’s a tax deduction if you drive your own car to see clients or for other business-related matters. You’ll need to keep accurate records of your travel if you want to claim the 56-cent-per-mile deduction in 2021.

Please note that deductions for medical expenses for the self-employed can be a great benefit. You can deduct the cost of your medical insurance for yourself and your family and you do not have to itemize. If, however, you’re eligible for employer-sponsored medical insurance because your business is not your full-time job or if you’re covered by a spouse’s healthcare plan, you don’t qualify for the deduction.

Finally, if you reach the age to qualify for Medicare, your premiums for Part B and Part D, plus the cost of supplemental Medicare, or the cost of Medicare Advantage plan are also deductible.

As always, it’s well-advised that you consult a tax expert when considering your best strategy for filing your tax return. We are here to help assist you with that and all of your accounting and tax planning needs.

 

Source: https://www.kiplinger.com/taxes/income-tax/603972/most-overlooked-tax-deductions-and-credits-self-employed

 

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