While being self-employed has its share of perks, it does come with a higher degree of financial responsibility than traditional employment. This reality is most apparent during tax season when it comes time to cross your t’s and dot your i’s. In other words, expenses can quickly add up, so assuming you don’t have reliable IRS tax help, you may experience difficulty identifying which expenses can be written off. To alleviate some of the confusion, we’ve pulled together a list of the top tax write-offs.
Individual Retirement Plans (IRAs)
Individual Retirement Plans or IRAs as they’re more commonly known are one of the most economical tax write-offs. IRA’s are essentially savings plans which allow you to defer paying taxes until you’re ready to withdraw the funds. What’s great about an IRA is that the earnings accumulate all on their own without having to make deposits. The one drawback however is that you will face serious penalties if you withdraw the money before reaching the right age.
How to Get Started
The first step if you’ve elected to open an IRA is to decide which one is most lucrative for your situation. The most common types of accounts are the Roth 401(k) and Roth IRA. While their names may seem similar, they are in fact quite different. Perhaps the most notable of which is the contribution limit. The maximum contribution for a Roth 401(k) is $17,500 annually or $23,000 if you’re age 50 or older. For a Roth IRA this figure is significantly lower at only $5,500 a year (if you’re 49 or younger). Basically, with the traditional IRA you can pad your squirrel fund to a much greater extent. On the other hand, a Roth IRA can exist indefinitely without any required distributions. So in theory, you could pass it down to your kids and provide tax-free earnings for later generations. Levy & Associates can provide IRS tax help and offer more information on various types of deferral accounts.
Home Office Deductions
If you’re like many self-employed entrepreneurs then you’re office is most likely based out of your home. Fortunately, the IRS has created a couple new deductions which support this select group. Specifically, the deduction grants $5 per square foot—assuming the space is used regularly and exclusively for business. The most you can claim is $1,500 or 300 square feet. Check out the rest of the eligibility requirements to claim this deduction.
Do you require the use of your automobile for business purpose? If you answered yes, you’ll be able to deduct the miles you travel directly on your tax return. You can either use the prescribed IRS standard (last year it was 56.5 cents) or the actual expense. Be mindful to include car payments, registration, depreciation, insurance, parking fees and any other maintenance related costs, just to cover your bases.
The best way to find out if you’re claiming all your possible deductions is to enlist the help of a specialized tax expert. They’ll provide a complete account of your finances, plus the write-offs you qualify for.
About the Author
Lawrence Levy is the President and CEO of Levy & Associates, a firm specializing in IRS and state tax resolution. http://www.levytaxhelp.com offers traditional tax preparations as well as accounting and bookkeeping services.