I was a self-employed consultant for part of 2013 and want to make sure I don’t miss any tax breaks when filing this year. I’ve never had self-employed income before. What deductions can I take?
Whether you were self-employed during 2013 or just have some freelance income on the side, you’ll generally need to file Schedule C (or Schedule C-EZ) with your taxes this year. But you’ll also be able to take a variety of deductions. Don’t forget the following:
Equipment, supplies and advertising. You can deduct the cost of equipment you buy for your office, such as a computer, printer, scanner, shredder, filing cabinets, phone system and a dedicated business phone line. Don’t forget to keep receipts for business supplies, such as printer cartridges, paper, pens and other office expenses, which you can also write off. And you can deduct the cost of advertising and marketing, such as ads for your business, as well as mailing and shipping.
Professional fees and education. You can deduct legal and accounting fees for your business, professional organization dues and licenses, subscriptions to trade publications, and expenses for education and training in your field.
Business travel and meals. The cost of business travel – such as plane and train tickets, cabs and rental cars – as well as hotel costs are deductible. If you travel for business in your own car, you can deduct 56.5 cents per mile (commuting from home to your office doesn’t count). Don’t forget little expenses, such as parking, tolls and even baggage fees for business travel. Keep receipts and a mileage log. In most cases, you can deduct only 50% of business meals.
Office costs. You can write off the cost of an office you rent, or you can take a home-office deduction if you use part of your home regularly and exclusively for business. For a home office, you can deduct a portion of your mortgage interest or rent, real estate taxes, utilities, home insurance and depreciation based on the percentage of your home you use for business purposes. Or you can use a new option for the home-office deduction this year: a simplified calculation that lets you deduct $5 per square foot, up to a maximum of 300 square feet (topping out at $1,500). Calculate the deduction both ways to see which version gets you a bigger break. For more information, see New Tax Break for Home Offices, IRS Makes Claiming the Home-Office Deduction Easier and IRS Tax Topic 509 Business Use of Home.
Small-business retirement-plan contributions. People with self-employment income have several retirement plan options. The two main choices are a solo 401(k) and a Simplified Employee Pension (SEP). It’s too late to open a solo 401(k) for 2013 income if you don’t have one already (you had to open the account by December 31), but you still have until April 15, 2014, to open a SEP and make contributions for 2013. Your contributions are tax-deductible and are based on the amount of your business income for the year. For more information, see Best Ways for the Self-Employed to Save for Retirement and Do-It-Yourself Retirement Plans.
Health insurance premiums. You may be able to deduct your health insurance premiums for yourself, your spouse and your dependents. And if you have enrolled in Medicare, you can even deduct the premiums you pay for Medicare Part B and Medicare Part D, plus the cost of a Medicare supplement policy. (You can’t deduct your health insurance or Medicare premiums if you are eligible to be covered under an employer-subsidized health plan offered by your employer or your spouse’s employer.) You may also be able to deduct a portion of the cost of long-term-care insurance, based on your age — for 2013, up to $360 if you’re age 40 or younger; $680 if you’re 41 to 50; $1,360 if you’re 51 to 60; $3,640 if you’re 61 to 70; and $4,550 if you’re 71 or older.
See my Tax Tips for Freelancers and the Self-Employed column and the IRS’s Self-Employed Individuals Tax Center for more information about which forms you need to file if you had self-employment income. Also see IRS Publication 334 Tax Guide for Small Business for details about each deduction, and our Most-Overlooked Tax Deductions for other tax breaks.
Copyright 2014 The Kiplinger Washington Editors