Tax day is fast approaching, and for the self-employed, the days remaining until April 15 can be harried. You need to keep your business going while assembling all the necessary tax-related data and figuring out what you can write off as a business expense. If you're among the 41 percent of Americans who file their income tax returns during the four weeks before the deadline, check out this quick rundown of the items that typically qualify as a tax write-off for people who are self-employed. But a word to the wise: speak with an accountant just to be sure.
Most Overlooked Self-Employed Tax Write-Offs
1. Home Office.If you work from home, there's good news: You can claim your home office. Fred S. Henkin, a certified public accountant in Columbus, Ohio, says there are two criteria for claiming this tax write-off: 1) part of your home is used regularly and exclusively for business; or 2) the space is used to meet with clients/customers.
2. Health Insurance.Health insurance premiums for the self-employed can generate some tax savings. "You can write off health insurance to the extent that it meets or exceeds the profit of the business," Henkin says. "This deduction would be a reduction of adjusted gross income (includes interest, dividends, pension payments, etc.) and not a deduction against the business income (i.e., income generated from the business activity)."
3. Retirement Plan.Many self-employed people don't realize they can deduct contributions they make towards a self-employed retirement plan (SEP). This deduction works much like that for health insurance, in that it reduces adjusted gross income but not business income.
4. Mileage.Believe it not, miles driven for business purposes are commonly missed as a tax write-off. This year (2014) the going rate is 56 cents a mile. "You must keep a log to substantiate the deduction," Henkin warns.
5. Education.Classes, workshops, webinars, research material, travel expenses, e-books and physical books all count as tax write-offs if they increase expertise, or enhance and add value to the business.
Common Self-Employed Tax Write-Offs
1. Meals and Entertainment.The critical fact about this tax-saving tactic, according to TurboTax, is that the restaurant or entertainment expense qualifies only if it is necessary and benefits the business. Meeting a client for coffee or lunch? Save the receipt and write it off. Just grabbing lunch during your workday? Never mind.
2. Office Supplies.A lot of things fall under this umbrella. "Any expenses directly related to the office can be written off," Henkin says. Examples would be office furniture and smaller supplies such as printer paper, ink, envelopes, etc. Electronics like a laptop or tablet count as long as they are used for work. But as Mashable points out, if the device is used 70 percent for work and 30 percent for personal tasks, only 70 percent qualifies as a self-employed tax write-off.
3. Utilities.Utility costs related to a home business are eligible for a write-off. The most common is a landline telephone, but there are strict rules regarding this. "You can only write off a landline if it is a separate line used for business," Henkin notes. "But if you only have one phone line you can deduct long-distance expenses directly related to the business." It's also OK to deduct a portion of your home Internet bill as long as it is used for work; be prepared to prove the case if pressed.
4. Travel.In addition to deducting mileage, work-related travel expenses can be tax write-offs. For example, parking fees, tolls, bus fare, plane tickets, and the like qualify as long as they are incurred only for work travel.
5. Advertising and Promotional Items.Even the smallest business is likely to advertise in some way. And that means expenses as minor as the cost of printing business cards to more significant outlays like display ads in the local telephone directory. Anything related to promoting the business counts. The Houston Chronicle's Small Business section also says copyright fees, online marketing, fliers, and promotional events are acceptable tax write-offs if there is a direct relationship to the business.
Payroll is another big expense with tax write-off bona fides for any business. Some write-offs also depend on the type of business. "For someone in a manufacturing or sales business," Henkin says, "the biggest expense will most likely be the cost of goods."
Finally, don't even bother submitting a self-employed tax write-off unless it can be backed it up. Save receipts and other documentation. A simple, up-to-date spreadsheet will be a big asset.