Working for yourself can have a lot of benefits, but taxes are generally not one of them. When self-employed, you are typically left picking up the tab on some of the costs your employer otherwise would have covered, including Social Security and Medicare tax, not to mention an office setup and maybe even a company car.
Those extra expenses make claiming any available tax deductions all the more important. Here are five you should be sure not to overlook.
1. Home office deduction
If you are a self-employed person who works out of your home, then you may be able to claim the home office deduction, which "covers expenses related to any part of your home used 'regularly and exclusively' as your principal place of business," said Intuit TurboTax. "If you qualify, you can deduct the cost of insurance, utilities, rent, mortgage interest, property taxes, repairs, maintenance and other expenses related to the business use of your home."
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2. Self-employment tax deduction
Self-employed people are often solely responsible for paying the Social Security and Medicare taxes that they would otherwise split with an employer, and "the self-employment tax rate is 15.3% on net earnings," as opposed to the 7.65% employees would pay. The good news, however, is that the IRS "treats the employer portion of the self-employment tax as a business expense and allows you to deduct it accordingly," said Investopedia.
3. Health insurance deduction
Purchase health insurance for yourself or your family? You may be able to deduct that expense as well. The IRS allows for you to deduct "medical and dental insurance premiums for you, your spouse, your dependents and your children who are younger than 27 at the end of the tax year," said NerdWallet. Qualified long-term care insurance premiums are also eligible, "though there are specific rules."
4. Retirement savings deduction
If you are contributing to a retirement savings account (and hopefully you are!), "you can deduct your contributions to a retirement plan as an adjustment to income," said H&R Block. Eligible plans include Simplified Employee Pension (SEP) IRAs, Savings Incentive Match Plan for Employees (SIMPLE) IRAs and solo 401(k) plans.
You may also be able to "get a tax credit for contributions you make to your retirement plan if your income isn't too high," said Kiplinger. Known as the Saver's Credit, this credit "is worth 50%, 20% or 10% of your contributions, depending on your adjusted gross income."
5. Continuing education deduction
Another worthwhile deduction is the continuing education deduction, which allows you to deduct the "costs of 'qualifying work-related education,' including things such as tuition, books, supplies, lab fees, transportation to and from classes and related expenses," said NerdWallet.
Just note that "the expenses are deductible only if the education 'maintains or improves skills needed in your present work,'" meaning "if you're taking classes to change careers or you're working toward the minimum educational requirements for a trade or business, this probably won't work for you." And as a rule of thumb, it's better to play it safe than sorry with deductions to avoid an IRS audit.
