Self Employment Tax Deductions

At the end of a fiscal year every individual and organizations (such as companies and corporations) start a process that is known as 'filing of income tax return'. The income tax return is basically a document that states the tax payers annual income, deductible expenditure and a mode of payment of tax that has been adopted to forward the tax amount to the Internal Revenue Service (IRS). The IRS of the United States of America is a government body that collects income tax from the citizens of USA. The percentage of income tax that is to be paid to the IRS is different for all individuals and is also dynamic, as it changes according to the current economic conditions. In the following paragraphs, I have made an attempt to explain some simple tax deductions for self employed. It must be noted that self employed taxes are levied specially by the IRS for social security and medicare purposes.

What are Self Employment Tax Deductions

IRS self employed tax deductions are the deductions that are applicable for people who are self employed and annually file their tax deductions. Before, we proceed to self employed tax deductions tips and their list, let us get to know more about the meaning and concept of self employed tax deductions.

Income tax is always levied by the IRS on the basis of the total income that is earned by a person. Tax deductions are subtractions that can be availed by tax payers, wherein the amount of income that is to be considered for taxation gets reduced. This income on which tax is levied is termed as a 'taxable income'. According to the rules and regulations of the IRS, there are two types of tax deductions that can be availed by the individuals, namely the standard deductions and itemized deductions. The standard deductions are one particular sum that is common for all tax payers, while itemized tax deductions are the ones that can be claimed by people by providing sufficient proof. These itemized deductions can be used by self employed people in order to reduce their tax liability.

List of Tax Deductions For the Self-Employed

The following is a small list of tax deductions that can be claimed and availed by self employed people. These deductions are basically itemized deductions, and hence, one cannot file for standard deductions upon the filing for the itemized deductions. While, availing these deductions, you will need to refer to Self Employed Schedule (SE) of Form 1040, which levies a Tax rate of 15.3% as of date. However, from the itemized deductions you may avail the following deductions...

Business Use of Home: In many cases, self employed people have used home as a place of their business. The Form 8829 and Topic 509 that are issued by the IRS proves to be helpful if, you want to deduct some amounts from your income. Some expenditures such as electricity bills, home improvement expenses, depreciation, property tax can become a valid ground to claim deduction. These exemptions have to be in proportion of the surface area of the home that is being used as a place of business.

Business Use of Car: In may cases, self employed people tend to make a lot of use of their cars for business purposes. The operational cost, repairs and depreciation of the car can be claimed as a 'business use of car deduction'. There are numerous twists and loops in these deductions and hence, you will have to refer to Topic 510, that deals with the deductions. Some important twists and turns include, limits on depreciation, segregation of personal and business use of car, etc.

Business Travel Expenses: Another very common and simple expenditure that is deductible is the travel expenditure of business. Air fare, hotel bills and taxi charges are some of the expenses that can be claimed in accordance with the business travel expenditures, in accordance with the provisions of Topic 511 of IRS.

Business Entertainment Expenditures: The IRS has also made provisions for the deduction of business expenditures that have been incurred as a result of business activities. These expenditures however, have to be backed up by some good amount of proof.

You may also avail some other types of self employment tax deductions, such as, mortgage interest and theft losses and even, disaster losses deductions. Under the Medical and Dental Expenses section, self employed health insurance deductions can also be availed. Moral is to know more about your tax deductions and reclaim your dollars that are slipping out of your hands.

Good Luck!