If you run your own business or plan to do so, you should know everything you can about the self-employment tax deduction, which can save you a lot of money if you do so. Many of these tax reduction benefits are available only if you are self-employed and not if you are employed by someone else. All you have to do is your own personal Social Security number as your business tax identification number and then make sure you file your return under a Schedule C or Schedule C-EZ and you are ready to start taking advantage of the deduction.
However, there is a difference between Schedule C and Schedule C-EZ and the benefits they can provide you in terms of taking advantage of the self-employment tax deduction. The EZ form should only be used by those who have the least amount of expenses and end the year with a substantial profit. Some other things in terms of taking advantage of the reduction using the EZ form is that it should be a business with no employees, one that has no reason to claim a home office deduction and will not report any depreciation. If you qualify with these, you must use the EZ form; otherwise, you should only use Schedule C to get the best of your tax reduction. Basically with a Schedule C you can report a loss, otherwise you can’t.
Let’s see what you can claim using the self-employment tax deduction. First, claim the equipment expenses under what is called Section 179. In this section, claim any equipment purchased that year. There may be a limit to the amount that tends to change a lot, so see Internal Revenue Service publication number 946 to help you find the exact limit.
You can also claim travel under the tax reduction. This includes mileage and percentages for any food and entertainment purchased. As long as you keep good records and your receipts, you would do well to claim this. You must also remember to keep this within the limits of business related expenses.
You can also include health insurance, social security taxes, and self-managed retirement benefits in your self-employment tax deduction. This means that you can include any premiums for yourself or your family members, as well as a certain amount of your social security tax payment in any claim you may make to qualify for the deduction. The only problem is that you, the social security claim is only on Form 1040 and not on Schedule C. As for self-managed retirement benefits, as long as you open a Keogh or a Simplified Employee Pension and subtract any contributions that can make these plans. This can only be done on Form 1040 as well. But it’s worth the savings you can claim in a deduction.
One last thing you can claim under the self-employment tax deduction is in regards to a home office. Whether you use the office for file storage and accounting or you don’t spend a lot of time there, you can still claim this as part of your self-employment tax cut.
As you can see, when claiming and receiving the benefits of being self-employed it is well worth it. As long as you keep careful and accurate records, you can make the most of the reduction.
