According to a recent study, self-employed people pay an average of 18.3% in taxes, which is nearly double what employees pay. Ouch… If you’re self-employed, freelancer, solopreneur, or contract worker that means you’re paying a significant amount of money in taxes every year.
But there’s some good news: as a self-employed individual, you can deduct several business expenses on your taxes that can help lower your overall tax bill. So if you’re looking for ways to reduce your taxes, read on for some helpful tips.
Retirement Plan Deductions
One of the biggest tax breaks for self-employed people is the ability to deduct retirement plan contributions from their taxes. If you have a Solo 401(k), SEP IRA, or SIMPLE IRA, you can deduct your contributions from your taxes — up to $22,500 if you’re under 50, or $30,000 if you’re over 50 in 2023. This deduction can save you thousands of dollars on your taxes every year.
Health Insurance Deductions
As a self-employed individual, you can deduct the cost of your health insurance premiums from your taxes. This deduction is available whether you have a private health insurance policy or are enrolled in Medicare or Medicaid. The premium deduction is available for both yourself and your family members — so if you have a spouse and/or children on your health insurance plan, you can deduct those premiums as well.
Home Office Deductions
If you use part of your home for business purposes — such as a dedicated home office — you may be able to deduct a portion of your home’s expenses, such as mortgage interest, property taxes, and homeowners insurance from your taxes. To qualify for this deduction, your home office must be used regularly and exclusively for business purposes — so no using it as a guest bedroom or home gym!
Business Equipment Deductions
If you purchased any equipment or software for use in your business this year — such as computers, printers, office furniture, and so on — you may be able to deduct the cost of those items from your taxes. These deductions are usually available regardless of whether you purchase the items new or secondhand.
Vehicle Expenses Deductions
If you use your vehicle for business purposes — such as meeting with clients or running errands for your business — you may be able to deduct a portion of the vehicle’s operating expenses from your taxes. These expenses could include gas, oil changes, car washes, registration fees, and more. Keep careful records of all the miles you drove for business purposes this year so that you can accurately calculate this deduction come tax time.
BONUS!
Did you know you can pay your quarterly taxes on a Credit Card?! I learned of this hack years ago from the blog Go Curry Cracker and have used this ‘trick’ every year so that I can get my credit card reward points for travel – brilliant! I use Pay1040 because they have the lowest fee. Please check the guidelines for yourself on limits as this is just a suggestion and I am not a certified accountant.
As a self-employed individual, there are several deductions available to you that can help lower your overall tax bill. So don’t get too discouraged come tax season — with a little planning and effort, you can minimize the amount of taxes you owe.
