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Tuesday Tax Tip - Top 10 Self-Employed Deductions

If you are self-employed here are the Top 10 self-employed BUSINESS EXPENSES, you can deduct on your taxes.

What Can I Deduct?

To be deductible, a BUSINESS EXPENSE must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases, you may not be allowed to deduct the expense at all. Therefore, it is important to distinguish usual business expenses from expenses that include the following.

  • The expenses used to figure cost of goods sold

  • Capital expenses

  • Personal expenses

For more info see Publication 535

Not sure if you are self-employed? Here's the rule: An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity, not-for-profit activity, or a hobby does not qualify as a business.

TOP 10 Self-Employed Deductions

1. Home office deduction - If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters and applies to all types of homes.

2. Standard mileage rate - The business standard mileage rate for 2022 is 58.5 for the cost of operating a car, van, pickup, or panel truck for each mile of business use.

3. Business meal expense - For a limited time, business meals are 100% deductible under certain conditions. See Line 24b, of Schedule C, for more information.

4. Taxes - You can deduct on Schedule C various federal, state, local, and foreign taxes directly attributable to your business. See Publication 535 for more info.

5. Self-employed health insurance deduction - You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. See chapter 6 of Publication 535 for more info.

6. Advertising - You can generally deduct reasonable advertising expenses that are directly related to your business activities. Such as advertising on social media.

7. Supplies and materials. Unless you have deducted the cost in any earlier year, you can generally deduct the cost of materials and supplies actually consumed and used during the tax year. If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met.

  • You don’t keep a record of when they are used

  • You don’t take an inventory of the amount on hand at the beginning and end of the tax year

  • This method doesn’t distort your income

(In other words, you did not already deduct the supplies expense amount when calculating your COGS figure.)

8. Travel expenses - These are the ordinary and necessary expenses of traveling away from home for your business. You are traveling away from home if both the following conditions are met.

  • Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work.

  • You need to get sleep or rest to meet the demands of your work while away from home.

9. Legal and professional services - These are fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business. Include fees for tax advice related to your business and for preparation of the tax forms related to your business. Also, include expenses incurred in resolving asserted tax deficiencies related to your business. For more information, see Publication 334.

10. Car and other vehicle insurance - Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums.

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