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Know All About Self-employed Tax Deduction Rules

 The introduction of work from home has given rise to the self-employment concept. Many people lost their jobs and thus have resorted to small businesses and freelancing. Self-employed individuals are their own bosses, and hence they are solely responsible for the business operations, including conducting daily operations to smoothly filing taxes. They must be aware of self-employed tax deduction rules. Hence, it is important to understand self-employment deductions.  


What is a self-employed tax deduction?  

Every self-employed person, freelancer, and independent contractors are liable to pay a basic self-employed tax which comprises Medicare and Social Security taxes. The law has set a maximum amount of net earnings that are subject to the Social Security tax. Any amount that exceeds the given amount is not subject to the tax.   


How to calculate?  

* The total tax rate of self-employment is 15.3% - which is divided into 12.4% for Social Security and 2.9% for Medicare.  

* Deduct half of your self-employed tax from your net earnings while filing taxes. The IRS will consider that portion as your business expenses.  


How can you claim a self-employed tax deduction? 

It is common to use every possible deduction for a self-employed individual that will help him to reduce his taxes, but there are chances that most of them might not know what they're entitled to. Whether you operate at a loss or profit, here are a few tax deductions that you don't want to miss.  


1. Home office deductions:  

You are liable for home office deductions if you have a space in your home that is solely dedicated to working tasks. The place must be the principal place of business, which means that you use your office to have meetings and complete work. The workplace must be used only for business purposes.  


2. Travel deductions:   

Whenever you are traveling for business purposes, use it as a deduction during tax filing. The deduction is only applicable when traveling is necessary for only business purposes and not for any personal reasons. Business travel that needs to be away from your home for a longer period, more than a work day, is only allowed for deduction.  


3. Startup Expenses:  

If you have started a new business, you can claim a deduction for the startup costs from your tax bill. These include advertising costs, marketing costs, and more. You can deduct the amount over a period of time, up to 15 years.   


4. Supplies and equipment:  

Any office supplies or equipment that is required for the smooth functioning of your job is also deducted from your taxes. Pens, papers, even printers, and any other office supplies used over the course of a year can be written off at tax time.  


5. Insurance premiums:  

You are liable to claim a deduction for business insurance premiums paid. All kinds of premiums, including health, a vision even dental insurance premiums, can be deducted by those who are self-employed.   


Who needs to pay self-employment taxes?  

Any job that pays less than $400 a year is exempted from paying taxes. And this holds true for all types of work. Clergy who are employed by a congregation is exempted from paying taxes as their entire income is exempt from self-employment tax. Also, if the church pays directly to a clergy, then the exemption might not apply.  


Bottom line:  

The expert team of FlyFin will help you to optimize your tax strategy and help you achieve your financial goals and needs. They have a professional team of experts who are well-versed in their field and will help you with all your tax problems.

Also Read - What Is a Tax Write-Off? How Does it Work for Business?


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