If you are self employed carrying any trade or business whether full time or part time or contractual or otherwise, the internal revenue code taxes your income differently than a person who is employed with any other person. So the deductible expense and deductions allowed to to a self employed persons are quite different than an employed person. So you may have to deal with self employment tax return schedule C that has many expense listed for claim as expenditure against the gross business receipt.
What are Self Employment Deductions ?
Advertising expenditure is very common expense.So , if you have spent or paid for any kind of advertisement which is for your business purpose , you are allowed to deduct the expenditure. Any materials for marketing your business () and the cost of developing those (e.g. agency or designer costs).[Where to find on Schedule C: Line 8 ]
2. Commissions and Fees
If your sale is generated by any other person and you pay a percentage on that sale , such payments whether known as commission or brokerage or fee is your business expenditure. It is fully claimable [Where to find on Schedule C: Line 10 ]
3.Business Insurance Premium
You need insurance to protect your business from fire, theft, flood, calamities, malpractice, errors and omission, general liability, etc). Such an expenditure is deductible expense [Where to find on Schedule C: Line 15 ]
4. Vehicle Running Costs
Any expenditure on car or other vehicle you use for carrying out businesss is fully allowble expenditure. So , account for expenses on. gas, insurance, registration, repairs and maintenance of car and motors used for business purpose is deductible expenditure. [Where to find on Schedule C: Line 9 ]
5. Loss or Depletion
IN certain types of business like distribution of oil, gas etc, some loss or depletion is inevitable part of the business. Such losses are allowble deductions , But keep in mind that IRS will scrutinize these deductions more than others , so deductions need to be reasonable and properly authenticated or vetted by an accountant for [Where to find on Schedule C: Line 12 ]
6. Depreciation on business assets
You should claim depreciation expense on business assets like computers, office equipment, tools, furniture, cars. The depreciation claim is divided over years and computed as per the rates of depreceition specified by IRS. However , for small business owner , there is a chance of opting full depreciation by claiming section 179 deduction in the year of purchase of asset it self. Read seprate posting how to claim 100% depreciation under section 179 of US code 26 . [Where to find on Schedule C: Line 13 ]
7. Employee Wages
Expense on salaries, commissions, bonuses to employees can be claimed as wage expenditure . [Where to find on Schedule C: Line 26 ]
8. Employee Benefit Programs
Apart from usual salary or wages to employees , you maybe providing health or life insurance, education assistance etc your employees . These can be claimed as deductible expense under employees benefit programs. [Where to find on Schedule C: Line 14 ].
9. Home Office Deduction
As a small business owner, often your business run from your home itself. So home office expense should be determined by apportioning expenditure on rent, utilities, repairs, insurance, mortgage interest related to your home. Claiming home office expense is easy , but there is great chance of IRS audit on this claim. So it is prudent that you create a dedicated area within home for exclusive use for business purpose and only proportionate expenses pertaining to that area should be filled in IRS Form 8829. [Where to find on Schedule C: Line 30 ].
10. Health Insurance Deduction
A self-employed person can deduct personal health insurance premiums if following criteria are met :
- Business is not in loss for the tax year. Only if there is profit that you can claim personal health insurance expense against that profit
- You were not eligible to enroll in an employer’s health plan or a plan for your spouse.
- You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.
[Where to find on Schedule C: Line 29 of Form 1040 ].
11. Interest (mortgage)
Any interest paid on a mortgage for property that is used for business purpose is allowble expenditure. Make your claim on the basis of Form 1098 that you receive from the lender if you pay mortgage interest during the year. [Where to find on Schedule C: Line 16a].
12. Interest (other than home mortgage)
If you borrowed money for the purpose of business from any source like credit cards, business lines of credit, you can deduct the intertest paid on the portion of loan used for business purpose.
13. Labor on Contract
When you hire independent contractors for a job related to business say a web developer or temporary repair jobs for computers , such expenditure are fully allowble against business profit). [Where to find on Schedule C: Line 11].
14. Legal or Professional Services
Professional fees paid to attorneys, tax preparers, accountants, other professionals for any services used for your business is allowble expenditure.[Where to find on Schedule C: Line 17].
15. Client Entertainment
Enetertaining clients may be a requirement for your business , as part of marketing or sales effort. The expenditure on meals and entertainment of clients or on travelling out-of-town on a business trip are all allowed to be deducted . [Where to find on Schedule C: Line 24b].
16. Office Expenses
Various office maintenance related expenditure like cleaning services or other general maintenance are also allowed business deduction. [Where to find on Schedule C: Line 18].
17. Employees Pension Plans
Your share on your employees’ retirement plans like 401(k) are allowble business expense. Yes , contributions for any pension plan for yourself is deducctibel seprately as deduction in Form 1040 Line 28 but not as business expenditure. [Where to find on Schedule C: Line 19].
18. Rental expense on vehicles, equipment
Your business may require to rent or lease machines, equipment, vehicles . When you pay for such rent or lease , it can be deducted from business profit . [Where to find on Schedule C: Line 20a].
19. Rent or Lease (other business property)
Rent or lease payments including any government taxes on office or land or any other item other than vehicles can be deducted as deductible business expenses against the gross profit of business. [Where to find on Schedule C: Line 20b].
20. Repairs and Maintenance
Repairs or maintenance of office, fixing computer or replacing worn parts on equipment are necessary part of business . Expenditure on such repairs can be deducted . [Where to find on Schedule C: Line 21].
21. Office Supplies
Any office supplies like cleaning supplies if you clean office or business space, pens or printer ink, hot/cold bags used for office , office decorations are allowed business expenditure .[Where to find on Schedule C: Line 22].
22. Any Other Expenses
Law allows any other business expenses that incurred exclusively for business to be deducted while computing profit of the business. Thus, if business demands short term course for your staff or some skill development courses,banking fees, association dues, business gifts, industry magazines , all such expenses are deductible expense. .[Where to find on Schedule C: Line 27a].
23. Self-Employed Contributions Act (SECA) Tax Deduction
A self-employed, pays his your own share of Social Security and Medicare contributions, collectively known as SECA. You can deduct SECA deduction on Line 27 of Form 1040. You will compute this amount as part of Schedule SE.[Where to find on Form 1040 : Line 27].
You can claim various types of business taxes like your share of FICA for your employees or state or local licenses fee, or licenses required for your business type . Where to find on Schedule C: Line 23].
25. Travel & Tour Expense
Expenditure on business trips that consist of expense on lodging, airfare or rental cars, local transportation are allowable business deduction. IRS rule says that the travel must be overnight, away from your residence and primarily for business. [Where to find on Schedule C: Line 24a].