Tax Deductions for the Self-Employed

Submitted by Diversified Financial Solutions

Many people have questions about expenses and tax deductions for the self-employed. Here are 21 items that may help you.

Advertising: Any materials for marketing your business (e.g. flyers, signage, ads, branded promo items, events, or trade shows) and the cost of developing those (e.g. agency or designer costs).

Car Expenses: Business portion of your actual car expenses (e.g. gas, insurance, registration, repairs, and maintenance) or business mileage (will need January 1 and December 31 odometer reading) public transit expenses (e.g. buses) if you use local transportation.

Commissions and Fees: Commissions/fees paid to non-employees to generate revenue (e.g. agent fees). Many companies (e.g. Uber, Airbnb) remove their cut before paying you, so don’t include those.

Contract Labor: Any payments made to independent contractors (e.g. a contracted web developer).

Depletion: If you’re in the business of mining natural resources (e.g. oil wells, natural gas, logging), you can write off the use of those resources. (We suggest getting an accountant if this applies.)

Depreciation and Section 179: Depreciation expense on business assets (e.g. computers, office equipment, tools, furniture, cars). Note: The IRS requires you to use Form 4562 to claim these deductions.

Employee Benefit Programs: Costs related to benefits you provide your employees (e.g. health or life insurance, education assistance, accident, or liability insurance).

Business Insurance: Insurance intended to protect your business (e.g. fire, theft, flood, property, malpractice, errors and omission, general liability, malpractice, workers’ compensation).

Interest (mortgage): Interest paid on a mortgage for property used for business, other than your primary home. You may receive a Form 1098 from the lender if you pay mortgage interest during the year.

Interest (car, other): Other types of interest (e.g. credit cards, business lines of credit, interest on car payments). You can only write off the portion related to business, not the portion related to personal use.

Legal / Professional Services: Professional fees related to your business (e.g. attorneys, tax preparers, accountants, other professionals).

Office Expenses: Office expenses (e.g. cleaning services for office, general office maintenance) that don’t have a separate category.

Pension Plans: Contributions you make to your employees’ retirement plans (e.g. 401(k), Keogh plans, profit-sharing plans).

Rent or Lease (vehicles, equipment): Rent or lease payments on business property not owned by you (e.g. machines, equipment, vehicles).

Rent or Lease (other business property): Rent or lease payments on items that aren’t vehicles or equipment (e.g. office or land rent), including any government taxes on those items.

Repairs and Maintenance: Repairs or maintenance on business machines, equipment, or offices (e.g. repainting office, fixing computer/laptop, replacing worn parts on equipment).

Supplies: Any supplies that you use and replace (e.g. cleaning supplies if you clean homes, office supplies like pens or printer ink, hot/cold bags if you do delivery).

Taxes/Licenses: Various business taxes (e.g. your share of FICA if you have employees) or licenses (e.g. state or local licenses, or licenses required for your business type).

Travel: Travel costs related to business trips (e.g. lodging, airfare or rental cars, local transportation). The travel must be overnight, away from your residence, and primarily for business.

Meals / Entertainment: Meals or entertainment that you had with a client and during which you engaged in business discussions, or those incurred while traveling on an out-of-town business trip.

Utilities: Utilities related to your home

Email Heather Klaus with Diversified Financial Solutions at [email protected] to get more information, fact sheets, and other forms that can potentially help you receive the credits or deductions you deserve. You may also contact Heather at her office at 217.732.6529 or her cellphone at 309.242.7674.