13 Tax Tips for Self-Employed Workers in 2016
The gig economy often means trickier taxes for self-employed workers. A third of the American workforce falls into that category, according to TurboTax, including 3.2 million on-demand workers, like Uber drivers. People who are full-time freelancers, Uber drivers or part-time Airbnb hosts should plan to file a 1099 form as part of their taxes if they hit certain income thresholds — but they also qualify for many deductions that can lessen their tax hit, including some not offered to regular, full-time workers. As for any deduction, make sure to keep any supporting document in case the IRS wants to audit your taxes.
Here are 13 deductions that self-employed people may be able to use on their taxes this year.
1. Startup costs
Fledgling businesses and their owners can deduct some costs such as legal fees, marketing and advertising expenses and any bank fees.
2. Loan interest
Any interest on a business loan is a tax-deductible expense. Similarly, any credit card interest you incur for business purchases is deductible.
3. Publications and subscriptions
You can deduct the cost of trade, industry or specialized magazines, journals and books directly related to your business.
4. Social Security and Medicare taxes
Self-employed workers can write off half of the 15.3-percent they pay in Social Security and Medicare taxes. Companies usually pay this tax for their employees.
Related: Tax Trouble: 32 Celebrities Who’ve Tangled With the IRS
5. Car expenses
Self-employed workers can calculate the percentage of driving done for business all year and deduct the corresponding percentage of the total cost of operating the car (gas, oil changes, registration fees, repairs and car insurance). If you used your car for business 10 percent of the time, you can deduct 10 percent of your total car expenses for the year.
6. Home office deduction
Homeowners and renters who use a dedicated space in their homes only for business can deduct a percentage of their home expenses, such as mortgage payments, rent, utilities and property taxes. The IRS offers a simplified option to take this deduction, up to $1,500 year.
7. Phone service
In addition to the home office deduction, self-employed workers can deduct business phone, fax and Internet expenses. But you can only deduct the percentage used for business if it’s a line or service that also put to personal use.
Related: The Best and Worst States for Taxes
8. Supplies and equipment
Office supplies such as paper, computers, printers or scanners can be deducted if they are used only for business. If you expect the equipment to last longer than year, it should be depreciated on the tax return. Repairs on business equipment may also be eligible as a tax deduction.
9. Health insurance premiums
If you are self-employed and pay for your own health, dental and long-term care insurance premiums (and can’t qualify for a spouse’s employer-provided plan), then you can deduct those on your taxes. If you cover your spouse or dependent, that can be deducted, too.
10. Meals and entertainment
You can deduct half of the meal or entertainment’s actual cost if you keep the receipts. Meals without receipt can qualify for 50 percent of the standard meal allowance if you have records of the time, place and business purpose of the meal. The IRS scrutinizes these deductions, so make sure there was indeed a real business purpose for each.
Related: Own a Home? Here Are 10 Tax Breaks for You
11. Travel expenses
Business travel expenses are fully deductible, while meals and entertainment costs are limited to 50 percent (see above). If your trip is for both personal and business reasons, only deduct those parts of the trip that are for business.
12. Retirement plan contributions
You can deduct contributions to SEP and SIMPLE IRAs and other qualified retirement plans such as a solo 401(k). There are limits depending on the plan, the year and your filing status.
13. Education
You can deduct any education expenses that are related to maintaining or improving your skills or knowledge for your existing business. If you want to pursue a new career and take courses toward that goal, those costs aren’t deductible.
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