Tax season is in full swing! If you haven’t filed yet, you’ll want to get on that. The deadline of April 18th, 2016 will be here before you know it.
Today we’re going to be exploring the realm of taxes for a group of people for whom the season is particularly complicated: the self-employed. They should be saving about 30% of the money they see coming in, as they not only have to pay the portion of tax that everyone else pays, but they also have the pay the portion an employer typically covers. They should also be paying estimated quarterly taxes to avoid any late penalties every April, June, September and January.
If you’re self-employed, you likely know all the doom and gloom that is associated with filing your return. So today, we want to spread a little sunshine to you. Let’s talk about massive deductions you can take when you’re working for yourself that will lower your tax burden.
Health Insurance Deduction for the Self-Employed
Want to know the only good thing about health care costs as a self-employed individual? They’re deductible! That’s right; the premiums you paid for yourself, your spouse, and your dependents for health and/or dental insurance can be deducted prior to figuring out your AGI.
Remember that in order to take this deduction, you or your spouse cannot have a health care plan offered to you through an employer, as long as that plan would not cost you more than 9.56% of your income in premiums for the 2015 tax year. (If it would cost you more than that, you have every right to turn it down and buy something on the marketplace, which may make you eligible to deduct if one of you is self-employed.) To learn more about this deduction, check out this info from the IRS.
Track your business miles! For the 2015 tax year, you can deduct 57.5 cents per mile driven for your self-employment endeavors on your Schedule C. This year, I went to a conference in Charlotte, North Carolina in order to obtain new contracts and improve my education in the field.
It was right at that sweet spot where waiting in the airport and flying would be about the same amount of time as driving. I chose to drive, because the IRS mileage rate was more than what I would be paying for gas, and I’d actually be able to deduct more than if I had paid for a plane ticket.
Miles aren’t reserved only for long trips, though. If you drive anywhere outside of your normal commute for business purposes, you can deduct those miles, too. You can only deduct from point A to point B, however. If you stopped at the grocery store in between a meeting with a new client and your office, you cannot take the miles you drove to the grocery store.
If you don’t want to keep track of your own miles, there’s a great app in the iTunes store that does it all for you called MileIQ.
If you paid quarterly state taxes throughout the year, you may be able to deduct that from your Federal return, too. If all of this sounds way too intricate to figure out on your own, you may want to enlist the help of some tax software, like FreeTaxUSA, to do the heavy lifting for you. The great part about FreeTaxUSA is that even for the complicated returns of the self-employed, you can file your return for free. If you want additional services like audit assistance and live chat support, they have a deal going on right now where you can get the Deluxe Edition for only $5.95.