In this modern day, we want both flexibility and convenience. We also want to be our own boss. And that’s why we have seen a steady rise in the numbers of self-employed individuals in the United States, especially among young millennials who want to be in charge of their own career path.
When mulling over the advantages of becoming self-employed, the tax situation is usually not high on the list. It’s never an exciting idea to think of having to pay taxes in when tax season comes instead of getting a nice refund. However, people are willing to put up with it so they can be their own boss.
Additionally, there are tons of deductions out there for self-employed individuals that you need to know when tax season comes. If you take advantage of all the deductions that apply to you, you could end up saving a lot of money.
Funding your Transition
If you are just starting out in building your own self-employed contract work or home business, then you might not be sure how to go about funding the transition out of full-time employment. Different people rely on a variety of sources: from saving up enough to go without income for a time, to loans such as business loans or title loans, all the way to receiving help from family. However you fund your transition, know that the expenses you put towards building your business or contract work can be deducted!
Big Deductions You Might Not Be Aware of
Here are big deductions to keep in mind:
- A Portion of your Home
Working from home or using part of your home for your business can qualify you to get a deduction on a portion of your rent/mortgage, utilities, etc. To do this you need to calculate the percentage of square footage you use ‘exclusively and regularly’ for business-related activities.
- Health Insurance
You could possibly get deductions on your health insurance premiums if you bought the policies you have on your own. This can apply to premiums for yourself, your spouse, and your dependents. This would be an adjustment to income rather than an itemized deduction.
If you need further schooling, specialized classes, or other kind of education to run your business or continue succeeding in your self-employment status, then you can deduct those expenses. These expenses for ‘qualifying work-related education’ can include costs for tuition, supplies, books, digital programs, transportation to and from classes, etc.
- Your Transportation Costs
If you need to regularly use your vehicle for work purposes, then you are allowed to deduct one dollar for every two miles you put on your car for business purposes! Therefore, it’s important to keep track of your miles when you are using the car for work errands or client meetings.
- Retirement Savings
You don’t have to miss out on all the great retirement savings just because you are not traditionally employed. You can get a solo 401(k) and all your contributions up to $56,000 can be deducted in your tax filing.