There are many fulfilling aspects of self-employment: Being your own boss, making your own hours (theoretically), running with your strengths and creativity, and most of all, charting your own destiny. Self-employment can also bring some headaches we wouldn’t have if we had a ”regular job.” Here are some useful tips for easing some of that discomfort that goes along with self-employment taxes:
1) Deductible expenses: Deductible business expenses are only those that are both ”ordinary and necessary.” The IRS considers an ‘ordinary’ expense one that is common and accepted in your particular field. A ‘necessary’ expense is one that helps you perform in your business and is appropriate to your business and industry.
2) Necessary expense: An expense that is approved by the IRS does not have to be indispensable in order to be considered a ‘necessary’ expense.
3) Part-time at-home work: You don’t have to be self-employed full-time in order for the IRS to consider you self-employed. Self-employment can also include work you perform in your home in addition to your regular full-time job.
4) Exclusive use: Designate an exclusive use home work space. Sitting at your kitchen table or on your couch with your laptop is not considered exclusive. If you’re planning on deducting your home work space, prepare an exclusive space in your house, preferably a separate office, that you will use for your business. If you’re audited as a self-employed tax filer, your home office may be visited for verification.
5) Mileage: Don’t automatically think that just because you work at home you can’t deduct any mileage. The miles you travel for a business meeting or luncheon are considered a deductible self-employment business expense.
6) Document, document, document: As with all deductions, documentation is vital. Get a receipt for every single purchase you make that’s related to your business, even if you do business with a friend or family member. And for mileage deductions, keep a notebook in your car and record all mileage related to business travel.