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[S267]Self Employment Tax Deductions

by Donald Brown, Don

Self-employment tax deductions are a blessing for those who run their own business, or are planning to set up a new enterprise. These individuals can claim tax benefits that were not available when they were working as employees. Self-employed professionals can use their Social Security numbers as business tax identification numbers, and file taxes under Schedule C or Schedule C-EZ. It is important to understand the two schedules, because each provides a different set of benefits.

Schedule C-EZ is intended for use by those with relatively small business expenses, who finish the year with a profit, have no employees, do not report depreciation and have no need to claim a home-office deduction.

Schedule C is for more elaborate business enterprises. In addition to gross income, you will be asked to provide detailed information about your business expenses. Unlike Schedule C-EZ, with Schedule C it is possible to report a loss and realize a tax saving.

If you are self-employed, the following tax deductions are available to you:

Home Office

If you use part of your home merely for bookkeeping and file storage, you may still claim a home office deduction. This is possible even if you spend a good deal of time conducting business outside of your home office.

Equipment Expenditure

Section 179 is a benefit that allows you to deduct the entire cost of equipment purchased for your business in the same year. This deduction includes costs incurred on purchasing a computer, office equipment, filing cabinet or any other item relevant to your business requirements. There is a limit to this claim, and the allowable amount changes frequently. Check with IRS Publication 946 for the amount you are able to claim.

Travel and Entertainment

Business-related travel, mileage and a percentage of meal and entertainment expenses are also deductible. Be sure to keep all receipts and be prepared to explain the purpose of the expenditures in order to make these deductions.

Health Insurance and Social Security Taxes

Deductions are available for health insurance premiums paid for yourself and your family members. A part of the payment you make as social security tax can also be retrieved from your total income. This deduction is available on Form 1040.

Self-managed Retirement Benefits

Consider opening a Keogh or a Simplified Employee Pension plan to realize greater tax savings. When you file your Form 1040, the contributions that you make to either of these plans from your earnings can be subtracted from your adjusted gross income.

If worries about the tax system keep you from realizing your self-employment dream, stop worrying. The process can be a simple one, and the tax breaks available to you can help your dream become reality.

Self-employment tax deduction is a blessing for those who run their own business or are planning to set up their business. File taxes under Schedule C or Schedule C-EZ and have your social security number for identification. This helps you in getting relief that would have been difficult if you were a mere employee.

Both schedules work differently and a careful understanding is very necessary. Form Schedule C-EZ is used by those whose business expenses are small, who end up the year with a profit, which run the business without any employees, who have no need to claim a home-office deduction and who do not report any depreciation.

Form Schedule C is for business enterprises that bigger and require more handling. The main difference is that under schedule C, you can show a loss.

The following are the tax deductions that you can claim if you are self-employed:

Equipment Expenditure: you use a lot of computer for your own purpose and you can claim deductions. Also on the cabinets. But the actual limit can be sought in the IRS publications.

A percentage of travel, meal and entertainment expenses can be deducted under this facility.

Health Insurance and Social Security Taxes: health premium paid on your and your family's health is deductible but under form 1040.

Self-managed retirement benefits: You can open a Keogh or a Simplified Employee Pension plan. The contribution that you make to either of these plans from your earnings can be subtracted from your adjusted gross income when you file Form 1040.

Home Offices: using a part of your house for book keeping and storing files can be used as a deductible expense.

Well, these are just a few options available to you in terms of saving some money. Consult a well known tax consultant and you can reap better rewards in terms of savings.

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Both Donald Brown & Nicky Pilkington are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Donald Brown has sinced written about articles on various topics from Computers and The Internet, Family and Computers and The Internet. Donald Brown contributes to several web sites, on and topics.. Donald Brown's top article generates over 3600 views. to your Favourites.

Nicky Pilkington has sinced written about articles on various topics from Credit Cards, Mastercard Credit Card and How to Sell on Ebay. Find more about . Nicky Pilkington's top article generates over 90500 views. to your Favourites.