Schedule C: Tax Tips for the Self­-Employed or Small Business Owner (Part 2)

Our last post for self­-employed folks focused on income and other items to report on Schedule C taxes. Today we give you the low­-down on business deductions that can help offset the tax you owe.

Take advantage of these business deductions to help offset the self­-employment tax hit. Business deductions to keep track of include:

  1. Computer/printer and other technology you use for your freelance/small business.
  2. Phone calls, office supplies, advertising.
  3. Health insurance premiums ­ if you aren’t eligible to get coverage through an employer or spouse’s work. Life and renters or liability insurance may also be deductible.
  4. Contributions to a self­-employment retirement account (for yourself and/or employees).
  5. Actual vehicle expenses or use a standard mileage rate ($.56/mile) for travel related to your business work. Keep a log of dates and trip mileage! The IRS loves to see this kind of data.
  6. Payments to employees or people you hired to do sub­contract work.
  7. Rent you paid to lease business property and repairs/maintenance and utilities, if you work somewhere besides home.
  8. Legal/professional fees (but not memberships to hotel, sports or business clubs).
  9. Business travel expenses (100% of them) can be deducted ­ but keep immaculate records ­ the IRS frequently audits this area. For business meals and entertainment, you can deduct only 50% of the cost and they must not be “lavish or extravagant” (save the champagne and caviar for that special day with your significant other!)
  10. Home office/business use of your home: The IRS allows a deduction of $5.00/sq. ft. up to 300 sq. feet, but you must use this area of your home exclusively for business (not also for personal use!) and regularly.
  11. Cost of goods sold (with lots of rules ­- check them here).

Sadly, you may NOT deduct expenses for charitable contributions, political contributions or lobbying expenses. And be aware: according to Team Holly CPA, “In a recent tax seminar, we heard that 1040 filers who have a Schedule C are 4 times more likely to be audited than 1040s without a Schedule C”. So, that might be a good reason to have an accountant help you with your return!

Now that you have some tips for this year’s taxes, be sure to plan for next year ­ make estimated tax payments (Form 1040­ES) if you think you will owe more than $1000 for 2015.

Good luck!

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