With spring just around the corner, we can practically taste the greenery and sunshine heading our way. But before we start daydreaming about warm-weather vacays, we have to take care of some business. And by business, I mean taxes. If you haven’t filed yet, now’s the time to crunch those numbers and pledge allegiance to Uncle Sam. Or something.
Listen, you’re an adult. You know you have to pay taxes.
If you’re an employee – meaning someone pays you to work and you got one of those fancy W-2s at the end of January – then your taxes will likely be easy(ish) to do. Modern tax software makes it easy for people with simple situations to report income and pay the government or get a refund. But if you don’t work for The Man and you consider yourself a #bossbabe or whatever (please stop using this phrase), then your taxes might be a little trickier.
The good news is that self-employed people – i.e., people who work for themselves, whether as a small business owner, freelance photographer, Realtor, or contracted content manager (me!) – also have some advantages that regular working stiffs don’t. We can deduct a slew of business expenses.
Some tax deductions only make a difference if you itemize your taxes. If you take a standard deduction, which increased substantially last year thanks to sweeping tax reform legislation, then some of your favorite deductions might no longer apply. But other deductions will make a difference even if you take the standard deduction. I know because these deductions helped reduce our tax burden this year, and we ended up with a small refund instead of owing anything.
Now, let me be clear: I’m not a tax expert. At all.
Tax situations vary. You should absolutely talk to a tax pro or read through the FAQs on your tax program if you’ve got specific questions.
In this small space, I’m going to highlight some tax deduction categories that might apply to you if you work for yourself. I’ll include some resources at the end for a deeper dive. Without further ado, here are a handful of tax deductions worth looking into as a self-employed worker:
At Home
Office: Even if you only devote a small nook of your living room to work, you can probably take the home office deduction. There are some caveats to keep in mind. Your office space can’t be for general use, which means you won’t be able to deduct an office if you also use it as a homework station for your kiddos. But if you use a space specifically and only for work, you can deduct the cost of it from your taxes.
Equipment: Books, paper, pens, your computer, and anything else you use to conduct your business (stand mixers, kitchen tools, camera lenses, etc.) could all count toward a tax deduction. As long as these items are used to help you run your business, they likely count. Just make sure you keep your receipts.
Utilities: I’m online a LOT because my job as a content manager and writer demands it. Luckily, there’s a deduction for that. If you can calculate your internet usage – not to mention phone, electricity, water bill, and other utilities that apply to your work – then you can take it as a deduction. I calculate my internet deduction by figuring out how much I work and multiplying those hours by how much my internet costs per hour (which I determine by breaking down my internet bill into a per-hour sum). Do the same for any utilities you use as part of your business.
Out & About
Car: If you use a personal vehicle for your business, deduct it! In fact, the new tax law lets you deduct even more for your car’s depreciation, making it an even better deal for people who depend on their cars for self-employment work. Along with the vehicle itself, you can deduct mileage, gas, auto maintenance, registration fees and a whole host of other vehicle-related expenses as long as they’re directly related to your job.
Travel: The new tax law took away the entertainment deduction, even if it’s for your job, but you can still deduct things like meals (up to a certain amount) if they’re for work. Keep all receipts and make sure you separate business from pleasure.
Other
Qualifying Business Income (QBI): As a self-employed worker, you may be able to deduct your QBI from your taxes thanks to the new tax law. There are restrictions on this, but generally, if you meet the income and work classification limits, you can deduct up to 20 percent of your qualifying business income (this deduction helped us out this year!).
Medical: If you buy your own health plan and don’t qualify for an employer-sponsored plan from your spouse, you may be able to deduct your health insurance as a self-employed person, and it counts whether you itemize or not. You can also deduct medical expenses (if you itemize) if they exceed 7.5 percent of your adjusted gross income.
Marketing: You may be able to deduct business cards, ads, and other marketing materials if you used them to promote yourself or your business last year. For the first time ever, I made business cards for myself last year and deducted the expense. It wasn’t much, but it did bump our refund a few dollars. (Every bit helps when you’re responsible for that pesky 15.3 percent self-employment tax.)
Education: Did you attend a sales conference last year or enroll in a local coding class? You may be able to deduct certain education costs, like tuition and fees, if these expenses were used for your current job. These deductions generally aren’t available if you’re trying to get a new job, but if you attend a seminar or enroll in a course to help you in your existing role, you might be able to deduct the costs.
I touched on a few self-employed tax deductions here, but I didn’t cover general tax deductions for everyone, like childcare and mortgage interest. There are dozens of deductions available for people who work for themselves. If you want more info on how to bring that taxable income down, check out these articles and websites. My favorites are Nerd Wallet and Motley Fool, both of which offer clear guidance on a variety of financial topics.
IRS Guide: Deducting Business Expenses
The Motley Fool: Your 2019 Guide to Tax Deductions
Nerd Wallet: 5 Big Tax Deductions for the Self-Employed
TurboTax: 2018 Tax Reform Changes for Self-Employed Businesses
KDP: Self-Employment Deductions Under the New Tax Law
