Tax Strategies & Credits

Self-Employed Taxes: The Most Common Deductions That You're Probably Missing

by
Lee Reams II
on
10/8/2017
Self-Employed Taxes: The Most Common Deductions That You're Probably Missing

According to a recent study conducted by the Bureau of Labor Statistics, an incredible 15 million people fell under the umbrella of “self-employed” status in 2015 — equaling just over 10 percent of the entire workforce of the United States. But this shift — which has actually been growing steadily since the late 1960s — has less to do with the ability to come and go as you please and more to do with necessity. As the economy still attempts to recover from the trying economic times of the last decade, more and more people are taking full advantage of that entrepreneurial spirit and are choosing to take their destiny into their own hands.

This does, however, come with its fair share of challenges — taxes being chief among them. Filling out your taxes properly and taking advantage of all applicable deductions can be difficult enough when you have a traditional job, to say nothing of how confusing things can become when you're talking about multiple 1099s and other issues. When asked about the most common deductions that self-employed people are missing when it comes to their taxes, a group of experts had a number of enlightening answers, to say the least.

Self-Employed Taxes: You Can Deduct a Whole Lot More Than You Think

Many of the deductions that self-employed people miss are ones that are unique to the world of independent contracting in the first place. Most traditionally employed people would never deduct their mileage to and from work — but if you preserve this mentality into your self-employed career, you're potentially leaving a huge amount of money on the table.

Ray Flatland of Lodestar Tax and Accounting said that, “From what I still see from clients, they still are not taking the mileage deduction. Either the client forgets to record their trips, or they see it as too burdensome having to keep up.” He went on to say that, “With today's technology, this has become an incredibly straightforward task with minimal effort required.”

Katherine Bennett, CPA, agreed, staying that mileage, “can add up to be a big deduction!” that people do not want to miss.

Joshua Standley of DKK Accounting, LLC offered similar advice. He said that, “the most commonly missed tax deduction for the self-employed is the self-employed health insurance deduction. You need health care these days, so make sure you get the deduction for it!”

Jim Herbert of Pro Tax and Accounting agreed, saying that “in our proactive efforts, we work with a lot of service-related businesses, so we generally tend to see health insurance and Medicare premiums getting missed most often.”

Self-Employed and the Art of Hiring Employees

Just because you're self-employed doesn't necessarily mean you don't have employees — far from it. But many newly self-employed individuals aren't nearly as judicious about whom they choose to hire as they could be, especially as far as tax deductions are concerned.

Kelli Cox of CGC Accountants & Advisors said that more self-employed people should seriously consider hiring their children for that reason. She said that, “a sole proprietor can hire their children under 18 and pay NO FICA tax, but take the wages deduction.”

Saving for Retirement

Retirement is a big concern for many people these days, but it's something that you often fail to think about if you're self-employed because you're so busy managing today's challenges that you just don't have the time to think about tomorrow's requirements. Once again, this is something that could see self-employed people leaving a lot of money on the table due to significant deductions that they're missing.

Luba Milgram of StarLite Tax Solutions said that the most overlooked tax deductions she commonly sees with self-employed clients are, “retirement plans and medical insurance deductions. Self-employed people can contribute pre-tax money to an SEP (simplified employee pension) or a solo 401(K) and enjoy great deductions as a result. She went on to say that, “self-employed people can still contribute to IRAs, too” — something that many people just don't realize.

In the end, all of this underlines the importance of taking the time to make sure you understand exactly which deductions you're entitled to and how to take advantage of each one. If you're still feeling confused or overwhelmed, don't be afraid to enlist the help of a trained financial professional — it's one investment that will clearly pay for itself when tax season rolls around yet again. 

Lee Reams II, writes for TaxBuzz, a tax news and advice website. Reach him at [email protected] or on LinkedIn.

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Lee Reams II

Lee Reams II

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I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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