Own Your Business And Get Sizable Tax Deductions Too!

For entrepreneurs who are running their own businesses and even for those who are planning to set up their own businesses, the self-employment tax deduction could be a huge blessing. By these deductions, many of the expenses that businessmen incur for their businesses could be put up for tax deductions. There are several such heads where self-employed people can win over employees in tax deductions. A preliminary step for availing of these could be use to their social security number as their business tax identification number and to file taxes under Schedule C or Schedule C-EZ.

Though these schedules are often mentioned together, they provide different kinds of benefits, the form for Schedule C-EZ is more beneficial for people who are spending lesser amounts on running their businesses, or people who make profits with their businesses, who run their businesses single-handedly, i.e. without employing anyone else, or those who do not claim home office deductions and don’t report depreciations.

The form for Schedule C is for bigger businesses. Here the taxpayers would be asked about the gross income – this is similar to the form for Schedule C-EZ – but in addition they would be asked in detail about the various heads of expenditure in running the business. But the advantage here is, the self-employed person can report a loss and get that saved on tax too.

Self-employed persons can claim the following tax deductions:-

(i) Equipment Expenditure – As per Section 179, the total cost of all equipment that has been purchased for conducting the business can be shown as tax deductible. Equipment such as computers, filing cabinets and furniture are tax deductible. But there is a limiting condition here. The limit is based on the amount that can be shown for deduction. A better idea can be got by referring to the IRS Publication 946, as this limit is changed quite frequently.

(ii) Travel Expenditure – All the expense incurred during traveling for the business is also tax deductible. This includes the meals and lodging that go with the travel. It is necessary to produce the receipts and bills of these expenses and to state the purpose of the travel.

(iii) Health Insurance and Social Security Taxes – All health insurance premiums paid for the self-employed person and for his/her closest family members can be claimed for tax deduction. A part of the social security tax can also be deducted from the total income. This deduction is available on Form 1040 and not on the Schedule C.

(iv) Self-Managed Retirement Benefits – Self-employed people secure themselves for their retirements with the Keogh or the Simplified Employee Pension plans. Upon filing the Form 1040, the payments made for these plans could be shown for tax deductions.

(v) Home Offices – Self-employed people who are running their businesses in their homes could claim home office tax deductions. These could be whole or part of the expenses incurred in the maintenance and upkeep of the home office. Even if the person conducts most of the business outside the home office and uses it only for simple chores like book keeping, its expenses could be claimed for tax deduction.

By: Adam J. Heist